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Governors’ review of services BBC World Service & Global News

Overview

BBC World Service & Global News, which brings together BBC World Service radio, BBC World television, and the BBC’s international-facing online news services, now reaches 185 million homes weekly. Independent surveys taken around the world in 2003 indicate that the BBC’s reputation remains strong overall, consolidating its position as the world’s most trusted source of information.

The ability to coordinate international news operations across radio, television and online paid dividends editorially, resulting in more coherent output with greater impact. An example was the series of interviews with world leaders on HIV/Aids, including Colin Powell and Kofi Annan, which were carried on all three media.

BBC World Service

Short-wave audiences of all international broadcasters are in long-term decline, and those of the BBC are no exception. BBC World Service lost an estimated 14 million short-wave listeners in the last year. That loss was only partially offset by a rise in FM listening, notably in Egypt and across Africa. But overall the global radio audience to BBC World Service fell slightly to 146 million weekly listeners (from 150 million the previous year). The decline has occurred where it has not been possible to obtain an FM presence for regulatory or financial reasons. Significant drops in audiences were noted in Western Europe, Saudi Arabia and the Ukraine. Efforts to overcome this and extend FM reach wherever possible are a priority for 2004/2005.

In Russia, difficulties in distribution combined with a declining appetite for international news led to a further decline in audiences. A strategy has been put in place to deal with this, and we expect it to be implemented speedily and effectively.

BBC World Service registered a creditable 1.8 million listeners in Iraq, in the BBC’s first-ever survey there, and a reach of 60% in Kabul. BBC World Service’s biggest audiences continue to be in Africa. In Ghana, the BBC is the country’s leading station. In Tanzania, six out of ten people are regular listeners.

139

capital cities receive BBC World Service on FM

1.8

million people listen to BBC World Service in Iraq

For more broadcasting facts and figures, see pages 58 to 67 and 136 to 146

But audiences have also reached 4.7 million in the world’s most developed media market – the United States. More than one in five opinion formers in New York and Washington listen each week, and one in four in Boston. In Britain too, the availability of BBC World Service on DAB Digital radio, Freeview digital television, digital satellite and cable has helped to push the audience up to a record 1.3 million people.

The increased availability of BBC World Service radio programmes on FM has helped to meet increasing competition from local and national stations. By the end of the year, BBC World Service output was being broadcast on FM in 139 capital cities.

Editorially, BBC World Service provided strong reporting and analysis of global events. In Iraq, BBC News correspondents were able to draw on the expertise of Arabic Service reporters stationed in key cities. The Arabic Service opened a production office in Baghdad and a major new production centre in Cairo.The month-long HIV/Aids season which was broadcast across all 43 language services in December 2003 was a notable editorial achievement.

Looking ahead, we have stressed the importance of BBC World Service securing a strong spending review settlement in 2004 in order to achieve sufficient investment to meet future FM targets and develop new media initiatives.

BBC Annual Report and Accounts 2003/2004 55

Governors’ review of services BBC World Service & Global News

BBC World

BBC World, the BBC’s commercially funded international news and information television channel, has seen continued improvement in its reputation and audience reach during the year.

The strengthening of its editorial reputation was driven by ambitious coverage of the Iraq war and its aftermath. During the year the channel anchored programmes on the conflict from Baghdad, Amman, Kuwait and Qatar, as well as London and Washington. Audience surveys indicate that viewers reacted positively. In Europe, for example, respondents saw BBC World as the most trusted international news channel during the Iraq war, while a survey of European opinion leaders saw BBC World described as more “authoritative” and “relevant” than its major competitors. At present, however, BBC World remains less trusted than CNN in some markets – reflecting CNN’s wider audience impact.

The channel has increased its 24-hour distribution base by 10% during the year. The channel is now distributed to 112 million homes full-time (see graph). Including part-time distribution, BBC World is available in approximately 260 million households (255 million in 2002/2003). More than 1 million hotel rooms, 20 airlines and 21 cruise ships also carry the channel. From a number of studies conducted during the year it can be estimated that BBC World reaches 53 million individual global viewers weekly.

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BBC international-facing online news sites

BBC World Service & Global News’ online sites continue to show strong growth in audience usage. Monthly page impressions rose to 279 million in March 2004 (228 million in March 2003). This represents more than 16 million individual monthly users.

Traffic to all language sites grew significantly over the year, and nearly all have met or exceeded their targets. Page impressions to the Persian and Urdu interactive sites have gone up more than five times, and traffic to the Russian and Spanish interactive sites has more than doubled. However there are concerns about the impact of the Chinese news site following moves by the authorities in China to block access to it.

The division’s interactive sites and programmes have demonstrated continued vigour, for example, hosting global debates with key figures including President Pervez Musharraf of Pakistan, the Malaysian Prime Minister Dr Mahathir Mohamad, President Hamid Karzai of Afghanistan and Prince El Hassan bin Talal of Jordan.

New interactive sites were launched to give a voice to people in the Islamic world and promote dialogue between global communities who share a common language or concern. Issue-focused websites on the Aids debate, and on Islam and the West have achieved strong recognition. All the major language websites now host regular debate forums – for example an average of two a week in December 2003.

The websites also served as a place where people can express their opinions in times of crisis or on key news stories.

BBC Monitoring

BBC Monitoring, based at Caversham, supplies news, information and comment gathered from the mass media around the world. It monitors more than 3,000 radio, television, press, internet and news agency sources, translating up to 100 languages, to provide an authoritative view of world events, 24 hours a day.

It provided key source material for stakeholders including the Foreign Office, the Cabinet Office, the Ministry of Defence and the BBC. It responded to the high demand for fast and accurate global media monitoring over the past year, of particular value as events unfolded in Iraq, Afghanistan, the Middle East and the whole of the Islamic world. There is an increasing demand for insight on global themes such as terrorism and weapons proliferation.

BBC Monitoring achieved its best-ever satisfaction ratings from its stakeholders at home and abroad, as measured in its autumn 2003 customer survey. Alongside high ratings for usefulness, range and selection, there was a notable rise in ratings for timeliness and responsiveness.

The key challenge for BBC Monitoring is to offer an increasing range of products, including multimedia content, to customers in the UK and overseas. We are keen to ensure that the reputation of BBC Monitoring continues to build and that it secures a solid outcome in its funding review, and maintains high satisfaction ratings from stakeholders during 2004/2005.

279

million page impressions to international news websites

3,000+

foreign media outlets tracked by BBC Monitoring

For more broadcasting facts and figures, see pages 58 to 67 and 136 to 146

BBC Annual Report and Accounts 2003/2004 57

review of services

Performance Governors’ against Statements of Programme Policy reviewcommitments 2003/2004

of services

Performance against Statements of Programme Policy commitments 2003/2004

Overview

In line with the Communications Act 2003, Governors are required to publish statements of programme policy each year, setting out how the BBC will fulfil its public service remit, and to report on performance against them in the Annual Report. To prepare for this new responsibility, we published pilot statements in 2002 and 2003. The statements for 2003/2004 are set out in this section, with performance data.

The BBC’s statements for 2004/2005 published in April this year represent a significant step forward as a mechanism for holding the BBC to account. We will report on performance against them in the next Annual Report.

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BBC Annual Report and Accounts 2003/2004 59

Governors’ review of services

Performance against Statements of Programme Policy commitments 2003/2004

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BBC Annual Report and Accounts 2003/2004 61

Governors’ review of services

Performance against Statements of Programme Policy commitments 2003/2004

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BBC Annual Report and Accounts 2003/2004 63

Governors’ review of services

Performance against Statements of Programme Policy commitments 2003/2004

full range of the BBC’s broadcasts and programmes. reduced funding in web-based content; Reducing investment does not mean giving the use of programme-related sites such as radio, audiences any less choice in the ways they engage television, drama, entertainment and factual with BBC content is up by, on average, 24% over the past year

Provide distinctive, original and high-quality News and analysis updated every minute, content in areas from news through GCSE and a wide range of educational output revision to Teletubbies including GCSE Bitesize for teenagers

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with BBC Nations & Regions to deliver more diverse BBC correspondents across the UK to rolling news; illustrate stories with more examples provide improved coverage of emerging from outside South-East England; broadcast from stories outside London; themed days on Scotland and Wales ahead of the parliamentary and national issues use a wider range of more assembly elections; indicate more effectively when local examples. A package of output was we are broadcasting from locations around the UK provided ahead of the elections in Scotland and Wales

BBC Annual Report and Accounts 2003/2004 65

Governors’ review of services

Performance against Statements of Programme Policy commitments 2003/2004

Cover the major general elections and international days covering major international stories, summits and increase our investment in live such as Iraq. Major EU elections have been coverage from the rest of Europe covered, with BBC News 24’s chief political

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BBC Annual Report and Accounts 2003/2004 67

Governors’ review of commercial activities BBC Worldwide Limited

Overview

BBC Worldwide Limited is the commercial subsidiary of the BBC that aims to maximise the value of the BBC’s content assets for the benefit of the licence payer, in order to reinvest its earnings into public service broadcasting and to extend the enjoyment of BBC programming among UK audiences and around the world.

It does this by, for example, licensing programme formats, selling rights, publishing books, magazines, DVDs and CD-Roms linked to BBC programmes, and operating commercial television channels.

BBC Worldwide operated in a very difficult trading environment in 2003/2004, but despite difficulties in some areas of its business, succeeded in returning £141million in cash to the BBC (up from £123million in 2002/2003).

The BBC is launching a comprehensive review of its commercial activities which will report by the end of 2004.

The commercial exploitation of assets created for the licence payer is an important part of the BBC’s response to the challenge set by successive governments for the BBC to make the most of financial self-help measures. BBC Worldwide helps to manage the BBC’s brands strategically, thereby maximising their value – as well as extending licence payers’ enjoyment through books, magazines, digital media and commercial television channels. Overseas, BBC Worldwide’s growing presence raises awareness of UK cultural values and acts as a global platform for talent – helping to deliver public value to the UK creative community.

In tough global conditions, BBC Worldwide increased its sales from continuing operations, including BBC Worldwide’s share of joint ventures, to £657million – up 3% on last year (£640million). The difficult trading conditions were offset by the success of BBC Worldwide’s multiformat strategy which gives it a diverse business base and some protection against market volatility. BBC Worldwide’s profit increased to £37million, up 13% on last year (£32million). Profit on continuing operations declined to £37million from £44million, primarily due to the erosion of the US dollar.

BBC Worldwide will only engage in activities that fit BBC values. This year, for example, BBC Worldwide introduced an ethical food policy restricting the use of BBC children’s characters on licensed products – this took account of growing public concern over child obesity.

In 2003/2004, BBC Worldwide sold 40,000 hours of television programming. Strong

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38

million homes in the US can access BBC America

20

countries bought and adapted the Great Britons format

For more broadcasting facts and figures, see pages 58 to 67 and 136 to 146

demand was evident at BBC Showcase where programme buyers view BBC productions. This year 480 buyers from 80 countries screened 600 hours of new television and initiated £50million of business.

Alongside BBC content, BBC Worldwide successfully exploits a wide range of intellectual property rights on behalf of independent producers. In 2002 the Department for Culture, Media and Sport (DCMS) launched a review of television programme production following claims that the independent sector was being disadvantaged. BBC Worldwide participated fully in the review and, following the DCMS response to the report in January 2003, has now enhanced its separation from the BBC in its dealings with the independent sector.

BBC Worldwide is a market-leader in the sale of television formats – programme concepts adapted for use in overseas markets. Last year’s big success was the interactive Great Britons format. This was successfully remade as Great Germans for the ZDF network and versions are under way in 20 other countries.

BBC Worldwide operates television channels in the UK and abroad. Overseas, over 340 million homes now have access to BBC Worldwide’s channels and the digital channel BBC America can be seen in 38 million US homes. In the UK, BBC Worldwide operates UKTV as a joint venture with Telewest. This year, UKTV Documentary, UKTV People and UKTV G2 were launched as additional niche networks. BBC Worldwide’s other main partnership is a joint venture with Discovery Communications Inc. The joint venture

channel Animal Planet is now available in 193 million homes and has secured distribution in the competitive German market.

BBC Magazines saw copy sales pass 100 million. Radio Times had its most profitable year, and there were strong debuts for Songs of Praise, Easy Gardening and BBC Parenting.

BBC Worldwide Consumer Publishing sold 26 million books, videos, DVDs and audio products. The big DVD success was The Office series two which broke the record for the fastest-ever selling DVD of a television series. BBC Worldwide is a leading UK publisher of adult non-fiction books – retaining number one position in cookery, gardening and natural history. BBC Audiobooks is the UK’s leading spoken word publisher.

It was a difficult year for children’s properties, given increased competition in the sector. But BBC Worldwide consolidated its position as the UK’s leading pre-school video and DVD distributor – with the CBeebies pre-school series Balamory doing well on DVD and CD-Rom, and recently launching as a magazine.

BBC Worldwide Learning’s major development was the launch of TeachandLearn.net – a partnership with the Open University to create the UK’s first online development service for teachers.

BBC Worldwide is active in digital media. This year it launched BBC News on RealNetworks’ broadband SuperPass service. It was also a strong year for the internet service provider beeb.net which saw 31% year-on-year growth in users.

BBC Annual Report and Accounts 2003/2004 69

Governors’ review of commercial activities BBC Ventures Group Limited

Overview

BBC Ventures Group Limited is the umbrella company for four commercial companies providing broadcast services in the UK and internationally, including to the BBC. The group, which has some 4,000 staff, was originally tasked to deliver cash and cost savings of £300million to the BBC over five years as part of the self-help programme asked for by the Government as part of the last licence fee settlement. After a strategic review of the business, the BBC decided to sell one of the companies, BBC Technology, which would enable the BBC to realise larger savings than planned, and take them earlier.

In a year when markets remained difficult, BBC Ventures Group delivered cash of £7million for the BBC (2002/2003 £6million) and cumulative cost reductions in the supply of facilities of £27million (2002/2003 £23million). Revenues were £432million (excluding trading between BBC Ventures Group companies of £36million) and profit before interest and tax (PBIT) was £15million.

The BBC is launching a comprehensive review of its commercial activities which will report by the end of 2004.

BBC Resources

BBC Resources is the largest production facilities business in Europe and supplies outside broadcasts, studios and post-production as well as costumes and wigs.

The business is dependent on supplying facilities for sports coverage, and last year was the trough of the four-year sport cycle. This, combined with tougher conditions in all markets, led to reduced volumes of work and pressures on margins. However, BBC Resources delivered revenues of £128million, finished the year in profit (PBIT £4million), generated £7million in cash for the BBC and is positioned to take advantage of the cyclical upturn in events over the next year.

The company had some notable successes, including supplying at very short notice the facilities for the memorable coverage of the Rugby World Cup celebrations in central London when half a million people were on the streets. With less than a week to prepare, BBC Resources supplied 38 cameras, 31 vehicles and a helicopter. For the World Rally Championship, the company supplied the first live coverage from inside cars travelling at high speeds in hostile terrain. Developments of special cameras and wireless solutions also facilitated innovative coverage of Wimbledon and the London Marathon.

BBC Technology

BBC Technology provides products and services for managing and distributing rich media content across multiple platforms including digital media, telecoms, broadcast and interactive television.

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BBC Annual Report and Accounts 2003/2004

750

thousand costumes available from BBC Resources

81%

of programming on BBC One subtitled

For more broadcasting facts and figures, see pages 58 to 67 and 136 to 146

In 2003 the company launched its Colledia set of products which enables broadcasters, film companies and other media organisations of all sizes to produce high-quality content more efficiently. Colledia has been bought by the US sports broadcaster ESPN.

The Governors’ decision to approve the sale of the company was taken after an internal strategic review of the BBC’s technology requirements for the next decade which identified potential annual savings of between £20million and £30million through outsourcing technology services. The buyer will take on the current staff of 1,400 and provide the BBC with technology support, including web-hosting, broadcast technology services and desktop support for the duration of a ten-year contract. The new contract is expected to begin in 2004/2005. The sale remains subject to the approval of the Department for Culture, Media and Sport (DCMS).

BBC Technology delivered revenues of £230million, finished the year in profit (PBIT £10million) but was a net consumer of cash in the year (an £11million outflow). The business passed cumulative savings to the BBC of £25million.

BBC Broadcast

BBC Broadcast aims to provide broadcasters with everything they need to launch, promote, manage and play-out content for television, the internet and mobile devices. The range of services includes new channel launches, play-out and channel management, channel branding and promotion, and subtitling, audio describing, signing and other media access provision.

The most significant development for the company in 2003/2004 was the completion of its new HQ, the Broadcast Centre, part of the newly developed Media Village close to Television Centre that is planned to become home to a number of other media companies. Over the course of 2004/2005 all the channels and interactive streams played out from Television Centre will migrate to the Broadcast Centre in one of the biggest operations of its kind in broadcast history. The new HQ will significantly increase BBC Broadcast’s capacity to service new channels.

Despite the investment in the Broadcast Centre, BBC Broadcast delivered revenues of £109million, finished the year in profit (PBIT £7million) and generated £15million in cash for the BBC. In addition, cumulative savings delivered to the BBC were £2million.

BBC Vecta

BBC Vecta was launched in 2003 to exploit commercially technical innovations generated by the BBC’s Research & Development team. BBC Vecta works with Research & Development teams in the BBC, including the Kingswood Warren research labs, and with other strategic partners.

BBC Vecta delivered revenues of £1million, finished the year having made a loss (loss before interest and tax £3million) and consumed £4million in cash.

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BBC people and talent

Overview

The main strategic business of BBC People (the new name for Human Resources & Internal Communications) has been continuing to develop and implement the Making it Happen culture change process designed to transform the BBC into the world’s most creative organisation. There have been new initiatives to improve the quality of leadership, succession planning, recruitment and induction.

As well as training its own staff, the BBC acts as a trainer to the wider broadcasting industry and it has continued to develop its free online courses.

An important part of the BBC’s role is to find and develop new talent, on and off air. BBC Talent is the key project in this area.

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Leadership

In April 2003 the Governors approved a significant new Making it Happen initiative, the BBC Leadership Programme, designed to improve the quality of leadership and management in the BBC. This followed a widespread staff consultation in 2002 which revealed a strong desire by staff for “a better relationship with our managers and … consistent leadership at all levels of the BBC”. The BBC Leadership Programme, based at Ashridge, was developed as a result and launched in September 2003. Over the next five years almost 7,000 managers, from leaders of small teams to senior managers, will complete the programme. The Governors have asked for the success of the training to be measured.

Succession planning

Alongside the BBC Leadership Programme, a succession-planning framework has been developed to identify and develop a pool of talent ready for senior leadership roles across the BBC – and to help identify gaps in the talent pool to inform external searches. A valuable by-product should be more movement of the most talented and best-trained individuals across the BBC. However, sharing and moving talent around the BBC has traditionally been very difficult to achieve. The Governors will view success in this area as a litmus test of a more positive attitude towards collaboration between divisions.

Feedback

The BBC carries out a staff survey each year as a way of identifying areas that need work. One such area is insufficient feedback to staff. The 2003 survey indicated that only 40% of staff receive regular feedback on how they are doing and only 35% of managers have regular conversations with staff about their development. Measures are being taken to improve performance through a new feedback and development process.

Recruitment

A new approach to recruitment is being introduced, with a new advertising style, website and literature – and useful experiments have been made in placing advertisements in a broader spread of media.

Induction

This year has seen the first full year of the new induction programme, Upfront. All eligible new staff are expected to attend this four-day programme, whatever job they do in the BBC. In the last quarter of 2003 attendance across the BBC stood at 97% with most divisions achieving full attendance. All new BBC Governors attend Upfront sessions.

Holby City’s Jaye Jacobs – got her break through BBC Talent

New BBC staff get a taste of programme making

Industry training

As well as training its own staff, the BBC continues to play an important role as a trainer to the wider broadcasting industry. BBC Training & Development now provides free online training modules for freelances covering aspects of television and radio production, editing and journalism. This is the first stage in building a learning portal for the broadcast industry providing a range of free online courses.

BBC Talent

BBC Talent was launched in 2000 and it continues to provide an important way for the BBC to find and nurture new talent throughout the UK. Nearly 600 people have been talent-spotted so far. New schemes in 2003/2004 included finding radio DJs for 1Xtra, writers for BBC Wales, sitcom writers for BBC Three, specialist classical presenters for BBC Radio 3 and young singers for a BBC Two children’s opera, Little Prince. Little Prince attracted some 25,000 applicants for the nationwide auditions of whom 6,000 were seen.

Awards

In 2003/2004 the BBC received over 250 programme-related awards across television, radio and new media. These included 28 BAFTAs, two Golden Globes, 22 Sonys and 54 RTS awards.

Outside of programme making, the BBC has received awards for a range of other activities such as property design, environmental schemes and good customer services.

BBC Annual Report and Accounts 2003/2004

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Being accountable and responsible

Overview

The Governors are responsible for holding BBC management to account and, as trustees of the public interest, they work to understand the needs and concerns of licence payers so that they can take them into account when questioning management about the quality of BBC services. Governors’ accountability activities in 2003/2004 have included launching and facilitating independent research to learn from licence payers what they think about aspects of BBC services (see pages 14 and 21), continuing to work with BBC advisory bodies, and reviewing the BBC’s processes for handling complaints.

The Governors also take seriously the BBC’s responsibility to be a good corporate citizen – it is one of the ways that the BBC delivers public value. Initiatives here range from charitable fundraising to measures to reduce the BBC’s negative impact on the environment. The BBC now submits itself to external verification of its progress in these areas and this year’s results are reported in this section.

Public consultation on the future of the BBC

The BBC actively consulted the public and opinion-formers on its future in the context of the Charter Review process launched by the Department for Culture, Media and Sport (DCMS) in December 2003.

The DCMS set out eight key questions about the BBC’s role and structure. They included: “What do you value about the BBC?”, “How should we pay for the BBC?” and “How should the BBC be governed and regulated?” The DCMS solicited responses through leaflets, websites and public meetings.

The BBC both promoted this consultation and commissioned its own audience research using focus groups and survey work. The BBC also undertook research among active users of BBC services on the internet and local radio. A questionnaire placed on the bbc.co.uk homepage drew 3,200 responses. A series of 32 local radio phone-in programmes was mounted across the country.

In February 2004, the BBC sponsored a Westminster Media Forum seminar on the future of the BBC, attended by broadcasting industry figures, regulators and policy makers. In March 2004 an edition of Panorama debated the future of the BBC.

The findings from all these consultative exercises mounted by the BBC have been passed to the DCMS to help inform their deliberations. Some of the findings are set out below.

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£9.67

the cost of the licence fee per month in 2003/2004

For more broadcasting facts and figures, see pages 58 to 67 and 136 to 146

Panorama special: What’s the point of the BBC?

BBC Governor Ranjit Sondhi listening to audiences in Birmingham

On the question of what people valued about the BBC, the views expressed were on the whole positive. In particular, people valued the quality of BBC programming –‘quality’ being defined both as setting high standards and as representing a high standard of impartiality and independence of news reporting. The genres most often applauded were news and current affairs, and other factual programming such as documentaries and natural history programming. Entertainment was also mentioned by many, although some examples were criticised as too populist.

Many people thought the BBC presented sport in the best manner and without the interruption of commercials – but there was regret that the BBC had lost some prime sporting events on television. There was a perceived lack of comedy on television, compounded by repeats of older series – although, when prompted, people could think of new BBC comedies that were good, current and relevant.

On the question of how the BBC should be funded, the majority thought the licence fee was an important and acceptable funding tool which offered value for money – but there was a group who were vociferous in their dislike of the licence fee which they saw as a compulsory tax.

On the question of how the BBC should be regulated, the general public had little awareness of the BBC’s present structure. In the discussions with industry figures the main concern was what was seen as the difficulties surrounding the role of the Governors. Their tasks were seen as being split in a way that made it more difficult for them to operate efficiently.

BBC advisory bodies, Broadcasting Councils and the English National Forum

The BBC draws on a network of more than 500 licence payers around the UK for advice on programmes and services. Broadcasting Councils for Scotland, Wales and Northern Ireland represent the interests of people in the nations. In England, Regional Advisory Councils advise the Governors through the English National Forum (ENF) and are informed in their turn by a network of Local Advisory Councils.

The Councils’ most important task is to advise the Governors on programme and service objectives for BBC Nations & Regions and to monitor, through a process of regular review, the extent to which the BBC delivers them. Overall, they felt that significant progress had been made against the year’s objectives. There were, however, a number of key issues of concern.

The Broadcasting Council for Scotland noted that the review of BBC Scotland’s news journalism had raised two key issues: audiences had an appetite for more localised news services and there was a need to explore new ways of engaging audiences in political issues. However, although a sizeable minority wanted an integrated early evening news programme for Scotland (the ‘Scottish Six’) there was not sufficient support to change the existing schedule. The loss of the television rights for Scottish Premier League (SPL) football was of concern as football coverage helped to drive approval among viewers. BBC Scotland should capitalise on coverage of non-SPL games and look to provide programming appealing to the same demographic group. Council also raised issues about

BBC Annual Report and Accounts 2003/2004 75

Being accountable and responsible

Community partnerships

All Together Now

All Together Now is a community media project based in Leeds. It teaches people in one of Britain’s most socially-deprived and diverse areas how to make radio, video and online pages. It gives them skills, but also builds confidence by allowing them to decide what is important, and to showcase the things they want to celebrate.

Their work goes out on BBC Radio Leeds, Look North, and the Leeds Where I Live website, capturing personal stories that journalists would find it hard to get to by traditional means. The project allows contributors to find a voice beyond their own community – and it helps to build trust between local people and the BBC.

The project is a partnership between the BBC, Education Leeds, Leeds City Council and Arts Council England, Yorkshire. Since March 2003 more than 100 adults have been producing material for All Together Now. Local schools, including parents, are involved too. In the longer term it is hoped to create a media centre in a newly built academy to act as a centre of excellence from which the concept can be developed in other areas of the country.

the portrayal of Scotland and the Scottish people in network programming.

Portrayal was a matter of concern for all Councils. It was felt that network commissioning was still too London-focused, resulting in programmes that did not fully reflect the diversity of life in the nations and English regions. The Broadcasting Council for Northern Ireland, in particular, noted a significant reduction in network commissions and expressed concern.

The Broadcasting Council for Northern Ireland also felt that the growing demand for increased language coverage for Irish and Ulster Scots would be a key issue for the BBC in Northern Ireland during the coming year. Council also highlighted the low coverage of both Digital Audio Broadcasting, for radio, and Freeview, for television. As a result the Governors have asked management to pursue the implications of extending digital coverage in Northern Ireland.

The Broadcasting Council for Wales noted the success of two ongoing strategies. The strategy of fewer but stronger brands had resulted in the strengthening of programmes and services. The community strategy had proved to be a very successful way of working closely with audiences throughout Wales and had led to a real feeling of ownership and involvement for licence payers. There were, however, concerns about the loss of some sports rights.

The ENF noted that, in addition to expressing concerns about the level of network production around the English regions, there was demand for more regional non-news television output. This would enable the BBC to engage with a wider local and regional audience than at present and to ensure that life in the English regions was accurately represented. The ENF also suggested that the current accountability framework in the English regions could be put to better use by network programme makers and commissioners. As a result, the Governors have asked management to raise awareness among commissioners and controllers of the role of the Broadcasting Councils and the ENF.

The ENF was pleased to note that their concerns of last year about local government coverage had led to the BBC carrying out a full scale review. In March 2004 the results were presented to the Governors who approved a programme of improved training for BBC journalists covering local government, as well as measures to strengthen relations with local councils. The Governors also approved a follow-up study to explore and improve coverage of local unelected bodies or quangos.

The views of the Broadcasting Councils and the ENF are published in more detail in the Annual Reviews of BBC Scotland, Wales, Northern Ireland and the English Regions. These are available at bbc.co.uk/annualreport.

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Central Religious Advisory Committee

The Central Religious Advisory Committee advises the BBC on religious broadcasting policy and programmes.

This year the Committee praised radio for the range, quality and vitality of its religious programming. BBC Radio 4’s Beyond Belief was particularly commended for the intelligence of its approach and its commitment to diversity not only between faiths but within them. The Committee also noted with appreciation the range of high quality religious programming on BBC Radio 2 and BBC World Service.

On television the picture was more mixed. The Committee found much good programming, with observational documentaries, such as When the God Squad Came to Town, praised for their presentation of religious themes and subjects in an accessible and engaging way. There was concern however at what the Committee perceived to be a lack of understanding of religious faith on the part of some programme makers. There was a widespread view, for instance, that Noah’s Ark had proceeded on the incorrect assumption that most Christians hold a literal belief in the flood story and that such false assumptions are too frequently in evidence.

The Committee raised other concerns such as the late and variable scheduling of religious programming on television and is yet to be convinced that the correct balance has been struck between the commitment to regular, continuing series

The Leeds-based project teaching local people media skills

Jihan El Alayly explores the concerns of families in Iraq

and one-off documentaries. The Committee will keep these questions under review over the coming year while also reviewing its own role and workings with a view to playing a more proactive, supporting role for programme makers.

As outlined in the review of BBC One (pages 25 to 26) the Governors will be undertaking work in the coming year to assess the effectiveness of the religion strategy they approved in 2002.

BBC World Service and Global News Consultative Group

The Governors’ World Service and Global News Consultative Group provides the Governors with an independent external assessment of the range and quality of BBC World Service output.

Editorial standards in the context of the Iraq war

In 2003/2004 the Group decided to assess the continuing quality and integrity of BBC World Service editorial control and processes, at a time of extraordinary world events which polarised opinion in the UK and internationally. The Group also wished to assess the reliability, balance, objectivity and impartiality of the BBC’s programmes in time of war, including comparison with competitors.

Having considered a range of sources and evidence, it is confident that the editorial process in World Service and Global News is robust, and that content is under constant scrutiny.

After listening retrospectively to a selection of programmes on the English and Arabic radio networks and watching the BBC World television channel during 2003, it concludes that the BBC’s coverage, in relation to the Iraq war and Middle East affairs, is impartial.

It is pleased to note that an independent assessment by specialists, the Royal Institute of International Affairs (Chatham House), supports the view that the BBC’s output to the Middle East is accurate, balanced and objective. It is also pleased to note positive results from a specially commissioned focus group study conducted in the Middle East, which indicate that the BBC’s output is rated highly in the Arab world for trust, reliability, objectivity and impartiality.

Review of language service output

The Consultative Group also reviewed output in English, Arabic, Russian, Ukrainian, Czech and Serbian.

It is satisfied that all BBC World Service output reviewed this year attracted high scores from independent assessors for authority and accuracy. While there is room for improvement in certain aspects, such as style and audibility, the overall picture is reassuringly positive.

BBC Annual Report and Accounts 2003/2004 77

Being accountable and responsible

Community partnerships

The Community Channel The Community Channel is a not-for-profit digital television station owned by the Media Trust, a charity that helps all charities to communicate better. The BBC has developed a strategic relationship with The Community Channel.

BBC support takes various forms. One is the free supply of archive material – for example, the channel has rebroadcast programmes made by the BBC World Service Trust about HIV/Aids and about leprosy.

There have been a number of training initiatives. BBC Training & Development, in partnership with The Community Channel and the University of Westminster, made a documentary about the Charity Times Awards. A plan is being developed to allow BBC trainees to help community projects – for example, by helping charities create content for The Community Channel.

The BBC allows The Community Channel access to three hours a day of its Freeview multiplex to enable the channel to be seen in digital terrestrial television homes.

BBC Broadcast, which has a commercial arrangement to play out the channel, is developing CSR initiatives including subtitling support and on-air promotions production.

Responding to complaints

The Governors’ Programme Complaints Committee (GPCC) is responsible for ensuring that complaints are properly handled by the BBC.

In June 2003, GPCC agreed with management the terms of reference for an external audit of BBC complaints-handling processes by the Office for Public Management. The outcomes were reported to the GPCC in September and when Mark Byford was appointed Deputy Director-General in December he was asked to take this work forward. Proposals for change were accepted by the Governors in June 2004 and are now being implemented. They are designed to make the system easy to access, clear, speedy, fair and independent. We will report on the outcomes next year.

In this Annual Report we are reporting on the system in place in 2003/2004. During this period, BBC Information was a key avenue for people wishing to lodge a complaint. The service operates round the clock and can be contacted by telephone, email or letter. In 2003/2004 it received approximately 2.5 million contacts in total, of which 8% were complaints. A daily log, published on the BBC intranet site, enabled programme makers to discover what the audience said about their work. Digests of the information were also circulated to management and Governors.

Where people believed there had been a serious breach of the BBC Producers’ Guidelines, they could make their case to the Programme Complaints Unit (PCU). The PCU investigated complaints impartially and recommended appropriate redress.

BBC Annual Report and Accounts 2003/2004

In 2003/2004, the PCU dealt with 1,640 complaints (1,596 in 2002/2003) concerning 875 items. Of these, 389 individual complaints were wholly or partially upheld concerning 102 items – 11.6% of the total number of items investigated. Upheld findings were published quarterly, together with a note of the action taken in each case.

In 2003/2004 there was a serious deterioration in the response time for dealing with complaints by the PCU. Only 35.5% of complaints were answered within the target times (20 days, or 35 days for more complex cases) compared with 49.5% in 2002/2003. This deterioration reflected the continuing impact of the email complaint facility – this was introduced in 2002 and led to a doubling of the number of complaints.

The GPCC undertook its third annual review of BBC complaints handling processes in April 2004, assessing the operations of BBC Information and the PCU against best practice criteria. It concluded that BBC Information provided an excellent service to audiences. The Committee noted that the PCU fulfilled a key role in investigating serious complaints, but that urgent action was needed to improve PCU response times.

The GPCC also considered appeals from people who had made a serious editorial complaint to BBC management and were not satisfied with the response.

The Committee considered 27 appeals this year, and upheld 11 in full or in part. It received quarterly complaint reporting from management, and maintained its

78

2.5

million people contacted BBC Information last year

£30m

raised by Children in Need

For more broadcasting facts and figures, see pages 58 to 67 and 136 to 146

The Programme Complaints Unit also liaised with Ofcom (and previously with the Broadcasting Standards Commission (BSC)) on complaints about BBC programmes. In the year to 31 March 2004, the BSC/Ofcom upheld 12 complaints of unfair treatment or unwarranted infringement of privacy, in whole or in part. In the same period, the BSC/Ofcom partly or wholly upheld standards complaints about 25 broadcast items. The BBC complied with all statutory directions given by the BSC/Ofcom.

Corporate social responsibility

The BBC sets out to deliver public value primarily through its programmes and services. But the BBC also extends its public value through activities that reach out directly into society through a commitment to corporate social responsibility (CSR).

For the BBC, CSR means acting in the public interest to strengthen and enrich communities across the UK and through international charitable action. It means behaving with integrity and ethical consistency towards its own staff, audiences and suppliers, and towards the communities in which the BBC operates, to maintain their faith in the BBC as a trusted creative institution.

Business in the Community, the organisation that works to improve the positive impact of business in society, publishes a CSR index each year. In 2004 the BBC’s score was 87% (71% in 2003) placing it 42nd in the top 100 UK companies for CSR. Public expectations of the BBC are rightly very high in this area and in 2003, the BBC set

up a dedicated CSR centre to lead and coordinate activity. Later this year, it will publish the BBC’s first full CSR report.

That report will give a comprehensive picture. The emerging themes so far from the BBC’s CSR activities in 2003/2004 are as follows.

BBC charitable appeals

BBC broadcast appeals are an important public service which enable a wide range of charities to raise money – and awareness of their work. The BBC tracks public attitudes to major fundraising appeals and 86% of respondents say broadcast appeals are a good way of raising money and 76% expressed high levels of trust in the BBC to ensure that the money raised is wisely spent.

The BBC Governors are advised on broadcast appeals by the Appeals Advisory Committee (AAC), 12 specialist external advisers representing a broad range of interests across the charitable field. Stuart Etherington (Chair of the National Council of Voluntary Organisations) was appointed Chair in July 2003.

The AAC provides advice on the BBC appeals policy and has undertaken a strategic review of broadcast appeals that will report to the Governors in the autumn. The AAC also assists the Governors with their oversight of major fundraising projects such as BBC Children in Need, and on the allocation of the BBC Radio 4 and BBC One Lifeline appeals. Last year the weekly BBC Radio 4 appeal raised more than £970,000 and the monthly Lifeline on BBC One raised more than £204,000.

BBC Annual Report and Accounts 2003/2004 79

Being accountable and responsible

Community partnerships

Media on the Park

Media on the Park is a partnership between BBC South and the community of Leigh Park near Havant in Hampshire. The area is acutely deprived and the community has little confidence in the media.

Park Community School is a local school that until recently was failing academically. The school was awarded official Arts Status in 2003, and used part of the funding this generated to plan a Broadcast Media Suite for use by schools in the area and the wider community.

The school approached BBC South for technical advice. BBC South responded with much more. They arranged for BBC Technology to equip the suite at cost; they placed two radio producers in the school and they offered support and airtime for the project.

Benefits for the children range from increased oral and literacy skills to increased motivation and confidence. And there are benefits for the BBC too. Staff have got to know this section of their audience better –sometimes having their views of what makes relevant news challenged along the way. And the perception of the BBC is slowly changing too – gradually it is coming to be seen as more accessible and trustworthy.

In November 2003 BBC Children in Need raised more than £15million on the night – and more than £30million in total. This is the highest amount ever raised, and will be distributed in grants to help children across the UK. In the same month, Blue Peter launched its Get Together Appeal with Mencap, and has raised £530,000 so far.

BBC Fame Academy bursaries

The talent show Fame Academy raised £2.7million through phone votes and record sales. The money has been used to set up the BBC Fame Academy bursaries to support young musical talent. Five young musicians have each been awarded grants of £37,500 towards their musical education and hundreds of grants have been made to school children to help them buy instruments or musical equipment.

BBC World Service Trust

The BBC World Service Trust, the BBC’s international development charity, aims to promote development through innovative use of the media in the developing world. It is a registered charity, not paid for by the BBC, and raises funds from governments, international agencies and other partner organisations. In 2003/2004 a record £10.2million was raised.

Trust projects include building capacity of local and national media, providing training in media skills, and developing health and educational campaigns in many of the world’s poorest countries.

The Trust now has 400 staff working on projects in 23 countries in partnership with NGOs, broadcasters and governments.

Connecting with Communities

Connecting with Communities was launched in October 2003 to promote and facilitate volunteering opportunities for BBC staff. The BBC is partnered with 30 national charitable organisations who offer more than 200 types of volunteering experiences across a range of sectors including education, the arts, disability and diversity. During the first six months more than 400 staff registered their interest.

BBC payroll giving

Payroll giving enables employees to make charitable donations straight from their salary. In the course of 2003/2004 an initiative was launched to increase take-up and as a result, payroll giving more than doubled to 9% of staff. Their contributions total more than £500,000 annually, which puts the BBC among the top 25 payroll givers.

Community partnerships

The BBC operates a number of community partnerships, actively seeking out opportunities to join with other local organisations to improve conditions in the communities in which they operate. Three case studies are set out in the boxes in this section.

Open Centres and BBC buses

The first BBC Open Centre was launched in 2001 in Blackburn to strengthen and extend BBC Radio Lancashire’s connection with its local audience by offering opportunities to learn about the media, acquire IT skills and become involved in community broadcasting. The project was very successful and there are now similar centres in Stoke, Sheffield and Liverpool. BBC Wales also has four community studios which carry out a similar role.

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A BBC bus was also piloted in 2001 to take the local radio station out on the road, to put listeners on air, and again to create opportunities for media and IT training. It proved a success and there are now buses operating in Lancashire, Humberside, Sheffield, Derbyshire, Lincolnshire, Cleveland, Newcastle, Manchester, Cumbria, Merseyside, Devon and York. Buses for BBC Wales and BBC Northern Ireland were launched in 2003.

The Open Centres and the BBC buses are wholly dependent on partnerships to provide expertise, funds and resources which the BBC does not have on its own. The projects were established with Blackburn with Darwen Council as the primary Open Centre partner and Lancashire County Council as the primary partner on the bus project, together with a number of local arts organisations, job centres and business link organisations as secondary partners. This model has been followed in each of the subsequent projects.

The success of the initiative can be measured in various ways. The target set for enrolment on basic IT training at the Blackburn Open Centre for the first year – 600 people – was exceeded inside six months. The centre is also attracting a notably younger and more ethnically diverse audience than the local radio station’s average listenership, bringing potential new audiences onto the BBC’s websites and airwaves.

Providing IT and media training in the community

Pudsey and friends turn out in Belfast

The BBC and the environment

The BBC acts to ensure that it complies with environmental legislation, but it has a responsibility to go further than this – to reduce its environmental impacts and to manage its business risks. A comprehensive review of the legislation has been undertaken, taking into account new legislation in the areas of waste and energy. The BBC’s management systems are being strengthened to ensure proper responsibilities and risks are identified and procedures put in place.

The BBC has had a corporate environmental policy in place since 2001, supported by a system of performance monitoring and targets for waste, greenhouse gas emissions, energy, transport and sustainable buildings. Environmental performance is benchmarked against leading UK companies and media companies. The Business in the Environment Index places the BBC 2nd in the media and entertainment sector, and 77th overall in comparison with 176 of the FTSE350 leading companies.

During 2003 the BBC collected more than 520 tonnes of paper in London and Scotland for recycling.

The BBC aims to reduce greenhouse gas emissions per broadcast hour by 8% between 2002 and 2010. The reduction in greenhouse gases (measured as carbon

dioxide CO2) is being achieved through

buying green electricity, implementing energy efficiency schemes, switching to low emission vehicles, and through on-site power generation using a combined heat and power (CHP) scheme.

The proportion of ‘green’ electricity used by the BBC has now reached 88%. The electricity comes from renewable sources such as hydroelectric power stations, wind farms and gas from landfill sites based in the UK.

The BBC has a range of schemes to promote energy-efficient business travel and help reduce road congestion and associated pollution. The BBC has set targets with its London suppliers to convert 40% of the business cab fleet to alternative/dual fuel such as LPG, LPG-diesel and electric.

Performance data on greenhouse gas emissions and waste recycling will be published in the CSR report in the autumn.

Sustainability is a key priority in the BBC’s programme of building and refurbishment. The Media Village, the BBC’s major new development in White City, London, has been awarded an ‘excellent’ environmental rating under the BREEAM (Building Research Establishment Environmental Assessment Method). This measures the environmental impact associated with buildings, assessed against performance criteria such as energy efficiency, transport emissions and ecological impact.

BBC Annual Report and Accounts 2003/2004 81

Compliance

The Board of Governors has clear responsibilities under the BBC’s Charter to ensure that the BBC behaves responsibly and follows all applicable regulation and codes of practice.

They must satisfy themselves that the BBC: complies with all legal obligations has an appropriate management structure maintains sensible controls to protect its assets adheres to its own guidelines and codes of practice

On the following pages the Board of Governors and independent auditors report formally on the BBC’s policies, procedures and compliance as follows:

1 Fair trading

Governors’ Fair Trading Compliance Committee (FTCC)

During the year the FTCC was comprised exclusively of Governors of the BBC: Rt Hon The Lord Ryder (Chair),

Professor Fabian Monds, Dame Ruth Deech and Baroness Hogg (retired February 2004).

The key responsibilities of the FTCC are to: agree and keep under review the BBC’s Fair Trading Commitment agree and keep under review the BBC’s Fair Trading Guidelines through the Governance & Accountability department, appoint independent auditors to test the BBC’s compliance with its Fair Trading Commitment consider reports from the independent auditors or other independent experts as appropriate, the Head of Fair Trading, Head of Business Assurance and Senior Executives on matters relating to compliance with the BBC’s Fair Trading Commitment consider significant external challenges to the BBC’s Fair Trading Commitment consider the Governors’ and independent auditors’ annual reports and opinions on Fair Trading consider the Governors’ annual report and independent auditors’ opinion in respect of the World Service Trading Protocols report to the Board of Governors on the work of the Committee

Governors’ statement on fair trading

Commercial activities and fair trading

The BBC’s core purpose is to provide public service broadcasting funded by the licence fee. Licence payers’ investments, built up over many years, have produced a critical mass of talent and production capability for the BBC, together with an unparalleled archive of past programming. These assets have a secondary value, over and above their use on public service channels and outlets. The BBC has a responsibility to ensure that this value is properly developed commercially, and used to the benefit of licence payers.

In pursuing commercial activities the BBC is, like other organisations, fully subject to both domestic and European competition law. However, unlike other organisations, the BBC’s responsibility to trade fairly is reflected in further and more demanding requirements arising from its Royal Charter. In particular, the Charter requires the avoidance of cross-subsidy between the BBC’s publicly funded and commercial activities.

Fair trading compliance procedures

The BBC’s fair trading obligations are embodied in its Fair Trading Commitment, compliance with which is scrutinised throughout the year by a standing committee of the Board of Governors, the FTCC. Compliance with the Fair Trading Commitment is underpinned by the BBC’s Fair Trading Guidelines which were reviewed and updated during the year, and were previously called the Commercial Policy Guidelines.

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The Committee is advised directly by independent auditors commissioned and managed by the Governance & Accountability department, and by the BBC’s Head of Fair Trading and Head of Business Assurance, if necessary without the mediation of BBC management. All subsidiaries and commercial operations report to the Committee on their activities, and relevant staff with commercial responsibilities are required by the Committee to be trained in the BBC’s fair trading policies.

The FTCC regularly reviews the independence of its external auditors with advice from the Head of Business Assurance. The Committee holds discussions with the external auditors, PricewaterhouseCoopers LLP, without management being present and reviews the level of non-audit fees paid to its external auditors. Any significant work is put out to competitive tender.

The management of the BBC’s fair trading arrangements is regularly tested by the British Standards Institute and these arrangements have been accredited with the ISO 9001:2000 quality standard. The last assessment conducted in December 2003 confirmed that the procedures are continuing to operate effectively.

By their nature, fair trading judgements are complex, reflecting the constantly developing environment in which the media industry operates. Through the FTCC, the BBC’s Board of Governors brings informed scrutiny and balanced judgement to bear on the important issues of policy that arise from the BBC’s engagement in commercial ventures.

In its response to the Richard Lambert Review of BBC News 24 against the conditions of its approval, the BBC offered to consider on fair trading grounds the relationship between BBC News and BBC World every year. This would include commissioning a triennial benchmarking exercise for independent consultants to confirm that marginal cost pricing remains market practice, and annual verification by external auditors that the marginal cost principle is appropriately applied in dealings between BBC News and BBC World. A benchmarking exercise was completed in April 2004 by independent consultants which confirmed that marginal cost pricing remains market practice. In addition, following a report from external auditors, the Board of Governors is satisfied that the marginal cost principle has been applied appropriately.

Fair trading complaints

Among the responsibilities of the Head of Fair Trading is advising the FTCC and the Executive Committee on any fair trading complaints which have been laid against the BBC. He may be contacted at BBC, Media Centre, 201 Wood Lane, London W12 7TQ. The FTCC publishes a quarterly bulletin of the BBC’s response to any allegations of breaches of the Fair Trading Commitment.

Events of the year

External challenges

During the year there were no formal investigations of the BBC’s commercial activities by external bodies eg, the Office of Fair Trading (OFT) or the European Commission. However, a number of complaints were made to the Board of Governors or to the Head of Fair Trading alleging that the BBC was in breach of its guidelines. These included the following: Faces Casting Agency, which supplies artists, extras and other parts to productions, wrote alleging that the BBC appeared to be operating a “closed-shop in terms of artists obtaining employment”.

The BBC responded explaining that the selection process had been refined to make it more transparent and is overseen by the BBC’s Procurement department. The selection criteria are available for public inspection and will be subject to periodic review. Provided agents meet the criteria, they will be able to apply to be included on the list of agents that the BBC may use.

BAB Copying, a stationery and office furniture supplier to a local BBC office, wrote to the Board of Governors raising concerns about the manner in which the BBC undertook its selection of a UK-wide stationery supplier.

BAB Copying claimed that it had been supplying stationery locally through the Birmingham BBC office for over 30 years but had now become aware that their contract would not be renewed as, following a procurement exercise, a national contract had been awarded to another company.

The BBC responded explaining that as a publicly funded organisation, the BBC is subject to the EU Public Procurement Regulations. The BBC had complied with these Regulations and, as required by the Regulations, an advertisement was placed in the Official Journal of European Communities (OJEC). There is no requirement to notify companies that an advertisement has been placed.

The letter also confirmed that pre-existing contracts with BAB Copying would, of course, be honoured.

The Chairman of the FTCC received a letter from IPC tx Limited challenging the BBC’s decision not to agree to IPC’s request for trailing two of its magazines.

Following consideration by the Committee, a response was sent to IPC confirming that in the Committee’s view BBC management had been correct to refuse to trail these two magazines as they did not comply with the BBC’s guidelines.

The Committee however recognised that the guidelines would benefit from review to ensure clarity and an internal review was therefore commissioned with advice from the Fair Trading auditors. This review has now been completed and the guidelines have been updated.

BBC Annual Report and Accounts 2003/2004 83

Compliance

The Head of Fair Trading received a letter from ntl:Broadcast which raised a number of concerns relating to the tender process by BBC Sport for the production of horse racing for Grandstand. The letter expressed concern about the transparency of BBC Resources’ costs and its level of pricing in bidding for this tender. The letter also alleged that BBC Resources was implying to independent producers that any bids which included BBC Resources would be treated more favourably by BBC Sport.

The Head of Fair Trading wrote to ntl:Broadcast confirming that he was satisfied that both BBC Sport and BBC Resources acted fairly and in a manner consistent with the BBC’s fair trading requirements. The selection of a partner by BBC Sport was based on fair, objective criteria. The investigation also confirmed that BBC Resources’ prices were fairly based and consistent with the BBC’s Commercial Policy Guidelines.

ntl:Broadcast subsequently wrote again alleging, inter alia, that the BBC does not appear to operate a level playing field and that there appeared to be a policy of keeping revenues in-house in the BBC. The letter also raised a number of specific instances which purported to support this.

The Head of Fair Trading undertook a detailed investigation of all the points raised and confirmed, inter alia, that the BBC does not have a policy of keeping revenue “in-house”, nor has it unfairly tilted the competitive playing field to the detriment of ntl:Broadcast as alleged.

All external challenges are reported in the BBC’s Fair Trading Bulletin which is available online at bbc.co.uk/info.

Governors’ opinion

The Governors consider that the policies contained in the BBC’s Fair Trading Commitment are consistent with the requirements of the Royal Charter and the accompanying Agreement. Through the FTCC, they have gained reasonable assurance that the framework of controls and procedures designed to ensure that these policies are applied throughout the BBC has been operating effectively throughout the year.

Independent Fair Trading Auditors’ report to the

Governors of the BBC for the year ended 31 March 2004

We have audited, in our role as the BBC’s Fair Trading Auditors, the system of internal controls established within the BBC to provide the Governors with reasonable assurance that the BBC has complied with its published Fair Trading Commitment for the year ended 31 March 2004.

Our instructions for this audit, which included the scope of work to be undertaken, were agreed with the FTCC. These instructions include agreement that our audit should be conducted in accordance with relevant auditing standards, agreement on the limit of our liability in respect of this work and agreement that our duty of care in respect of this work is solely to the BBC. We are satisfied that the agreed scope of our audit was sufficient to enable us to express the opinion set out below.

Respective responsibilities of Governors, management and auditors

The Governors are responsible for ensuring that the BBC meets all the requirements of competition law and trades fairly. They have established its Fair Trading Commitment, determine the objectives of the system of internal controls designed to ensure compliance with this Commitment and monitor the outcomes of those controls. They are also responsible for preparing the Governors’ statement on fair trading compliance, as included in this Annual Report and Accounts, which includes a statement on fair trading.

The BBC’s management is charged by the Governors with operating a system of internal controls designed to ensure compliance with the Fair Trading Commitment, including identifying and assessing risks that could threaten fair trading and designing and implementing responses to such risks.

As the BBC’s Fair Trading Auditors, it is our responsibility to form an independent view, based on our audit work, as to the extent to which the BBC has established, and applied, a system of internal controls which provide reasonable assurance that it has complied with its Fair Trading Commitment during the year. We have reviewed specific decisions reached by the BBC on fair trading issues only in so far as this is necessary to form an opinion on the system of internal controls. Our audit was not designed to express an opinion on the quality of the specific decisions taken by the BBC with regards to fair trading. We have also reviewed whether the Governors’ statement on fair trading reflects our findings of the BBC’s compliance with its system of internal controls, and we report if it does not.

This opinion has been prepared for, and only for, the BBC in accordance with our instructions which were agreed with the Secretary of the BBC on behalf of the FTCC. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Basis of audit opinion

We have carried out a programme of procedures and tests designed to provide us with the assurance that we were seeking. Our work consisted of enquiry and assessment to enable us to form a view as to whether an appropriate system of internal controls was in place. We also reviewed the processing of a sample of material transactions to provide us with reasonable assurance that the system of internal controls had been applied.

As with any system of control, however effective, it is not practicable to ensure that no errors or irregularities have occurred without being detected. Our audit work was therefore designed to give the Governors reasonable assurance, but not certainty, as to the adequacy of the system of internal controls which were in place and being applied to deliver compliance with the Fair Trading Commitment during the year. Further, because fair trading issues require judgements which ultimately might be tested in a court of law, competition authority or elsewhere, there is always a risk of challenge even where the system of internal controls has been followed and decisions have been taken with the greatest care.

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Opinion

In our opinion the BBC has established and has applied a system of internal controls which provide reasonable assurance that it has complied with its Fair Trading Commitment for the year ended

31 March 2004.

BBC World Service is responsible for commissioning and scheduling its own programmes and for making programmes for its language services, but purchases English language programme making and technical and support services from other divisions of the BBC (the Supplier Divisions). BBC World Service also receives services from and supplies services to the BBC’s commercial subsidiaries (the Subsidiaries).

It was agreed by a joint Foreign and Commonwealth Office (FCO)/BBC World Service Working Group that the BBC would draw up guidelines to govern the trading relationship between BBC World Service and other parts of the BBC, in order to ensure that BBC World Service maintains its distinctive voice and to preserve the clear separation between Grant-in-Aid and licence fee income. These Trading Protocols were approved by the FTCC in 1997. Each of the Supplier Divisions then drew up detailed agreements with BBC World Service, specifying: the services to be provided criteria to ensure the quality of the services the cost of the services

The FTCC is responsible for monitoring and reviewing compliance with the Trading Protocols. The FTCC receives regular reports from management on the effectiveness of the systems and procedures in place to ensure compliance with the Trading Protocols.

KPMG LLP (the external auditors) has reviewed a summary of the value of transactions and the related cash flows which have taken place during the year between BBC World Service and the Supplier Divisions and the Subsidiaries. KPMG LLP has reported to the Governors that, in their opinion, the information contained in the summary of transactions for the year ended

31 March 2004 has been accurately extracted from the books and records of BBC World Service and the Supplier Divisions and the Subsidiaries and has been properly prepared on the bases of cost allocation and apportionment methods set out in the agreements between BBC World Service and the Supplier Divisions and the Subsidiaries and, on this basis, there has been no material cross-subsidy between Grant-in-Aid and licence fee funds or between Grant-in-Aid and the BBC’s commercial subsidiaries.

Governors’ statement on BBC World Service Trading Protocols

Following regular reports to the FTCC by the Head of Fair Trading and internal and external auditors, the Governors are satisfied that: the Trading Protocols reflect the requirements of the FCO/BBC

World Service Working Group agreements are in place which are consistent with the Trading Protocols there has been no material cross-subsidy between Grant-in-Aid and licence fee funds or between Grant-in-Aid and the BBC’s commercial subsidiaries

2 Financial statements

Statement of the Board of Governors’ and Executive Committee’s responsibilities for the preparation of the financial statements

The Governors and Executive Committee are required by the BBC’s Charter to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the BBC and of its income and expenditure for that period. In preparing those financial statements, the Governors and Executive Committee are required to: select suitable accounting policies and then apply them consistently make judgements and estimates that are reasonable and prudent state whether applicable accounting standards have been followed and disclose and explain any material departures in the financial statements prepare the financial statements on a going concern basis unless it is inappropriate to do so

In addition, the Governors and Executive Committee have voluntarily decided to comply with the accounting and disclosure provisions of the Companies Act 1985 and, where applicable, of the Financial Services Authority Listing Rules. They are also responsible for keeping adequate accounting records and taking such steps as are reasonably open to them to safeguard the assets of the BBC and to prevent and detect fraud and other irregularities.

Report of the independent auditors to the Governors of the British Broadcasting Corporation (BBC)

We have audited the financial statements on pages 99 to 135. In addition to our audit of the financial statements, the Governors have engaged us to audit the information in the Governors’ remuneration report that is described as having been audited, which the Governors have prepared as if the BBC were a listed company and which is thus compliant with Schedule 7A to the Companies Act 1985.

This report is made solely to the BBC’s Governors, as a body, in accordance with the Royal Charter for the continuance of the BBC which came into force on 1 May 1996 (the Charter). Our audit work has been undertaken so that we might state to the BBC’s Governors those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the BBC and the BBC’s Governors as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Governors and Executive Committee and Auditors

The Governors and Executive Committee are responsible for preparing the BBC Annual Report and the Governors’ remuneration report. As described earlier on this page, this includes responsibility for preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities as independent auditors are established in the United Kingdom by statute, by the Auditing Practices Board, our profession’s ethical guidance and, in accordance with the terms of our appointment, the Companies Act 1985 and the Charter.

BBC Annual Report and Accounts 2003/2004 85

Compliance

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Governors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act as if that Act had applied to these financial statements. We also report to you if, in our opinion, the BBC has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding the Governors’ and Executive Committee remuneration and transactions with the BBC is not disclosed.

In addition to our audit of the financial statements, the Governors have engaged us to review their corporate governance statement as if the BBC were required to comply with the Listing Rules of the Financial Services Authority in relation to these matters. We review whether the statement on pages 86 to 90 reflects the BBC’s compliance with the seven provisions of the Combined Code specified for audit review by those rules and we report if it does not. We are not required to form an opinion on the effectiveness of the BBC’s corporate governance procedures or its internal controls.

We read the other information contained in the Annual Report, including the corporate governance statement, and the unaudited part of the Governors’ remuneration report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.

Basis of audit opinion

We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Governors’ remuneration report to be audited. It also includes an assessment of the significant estimates and judgements made by the Governors and Executive Committee in the preparation of the financial statements, and of whether the accounting policies are appropriate to the BBC’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Governors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Governors’ remuneration report to be audited.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of UK Public Service Broadcasting (the ‘Home Services’ in the Charter) and the BBC as at

31 March 2004 and of the deficit of the BBC for the year then ended and the financial statements and the part of the Governors’ remuneration report to be audited have been properly prepared in accordance with the provisions of the BBC’s Charter and the Companies Act 1985 as if that Act had applied to these financial statements.

KPMG LLP

Chartered Accountants Registered Auditor

London 17 June 2004

3 Risk and control processes

The Governors are appointed as trustees for the public interest to ensure that the BBC is properly accountable to Parliament and the public. Part of this role requires the Governors to satisfy themselves that the BBC is applying the highest standards of corporate governance.

The BBC has complied throughout the year ended 31 March 2004 with the Combined Code, issued by the London Stock Exchange in June 1998, which sets out the principles of good governance. During 2003 the Code was revised to include the recommendations arising from two reviews which sought to improve the effectiveness of boardrooms and strengthen the corporate governance framework. The Higgs Report reviewed the role and effectiveness of non-executive directors and the Smith Report, set up by the Financial Reporting Council, developed the existing code provisions for audit committees.

The BBC recognises the importance of, and is committed to, applying the highest standards of corporate governance and voluntarily complies with the Combined Code to the extent that it is applicable. Although the Revised Code is not applicable for the financial year under review, the BBC has made significant progress in formalising and revising existing policies, procedures and documentation in response to the revisions. Overall, the requirements of the Combined Code apply to the BBC with two exceptions. Firstly, those requirements relating to the appointment of non-executive directors are inapplicable as the Governors are appointed by the Queen in Council and their remuneration is set by the Secretary of State for Culture, Media and Sport. Secondly, those requirements relating to shareholders can only be applied to the licence-paying public, rather than shareholders through the stewardship of the Board of Governors.

The BBC follows the seven principles of public life set out in the Nolan Committee reports on Standards in Public Life.

How the BBC has applied the remuneration principles is detailed within the remuneration report on pages 91 to 94.

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Board structure

The Governors are members of the Corporation and act as trustees for the public interest while the Executive Committee takes responsibility for day-to-day operations. Details of the Board of Governors and Executive Committee are summarised on pages 8 to 9 and 10 to 11. A register of interests for both Governors and Executive Committee is maintained and may be inspected by written application to the Secretary of the BBC, BBC Media Centre, 201 Wood Lane, London W12 7TQ.

The Board of Governors refer some matters to sub-committees. The main responsibilities of these sub-committees are explained elsewhere in this Annual Report and Accounts.

Governors’ Programme Complaints Committee (page 78) Governors’ Fair Trading Compliance Committee (page 82) Governors’ Audit Committee (page 89) Governors’ Remuneration Committee (page 91 to 92) Governors’ Property Committee (page 90)

The attendance record of individual Governors at full Board and sub-committee meetings is detailed below:

1 Started 1 August 2003 2 Resigned 28 January 2004 3 Retired 9 February 2004

out of a possible 5

The Board of Governors have continued to evaluate their effectiveness and have initiated a programme of review including the consideration of different aspects of the Board and its sub-committees’ performance and operational administration.

The Governance & Accountability department support and develop the relationship of the Board of Governors with the organisation. The key responsibilities of Governance & Accountability in this respect are to: provide independent advice to the Board of Governors, with a focus on the performance of the BBC’s public services including performance against objectives and the BBC Statements of Programme Policy

provide administrative support for the Board of Governors in conjunction with the Executive Committee facilitate the Board of Governors’ public accountability and responsibility

Relationship and communication with licence payers and Parliament

The BBC seeks to keep the public informed about its services and the way in which it operates, and to be open and candid about successes and failures. The BBC will withhold information only where there is a genuine matter of copyright, contractual or commercial confidentiality at stake or where legitimate considerations of privacy apply.

Information is made available, and audience views obtained, in a variety of ways, many of which are discussed on pages 74 to 81. These include the BBC Statements of Programme Policy and other publications, internet services and public events.

The BBC lays its Annual Report and Accounts before Parliament. Governors or BBC Executives may be, and frequently are, called before a Parliamentary Select Committee to answer MPs’ questions about the BBC’s activities and plans. The Annual Report and Accounts is also available to any member of the public.

Approval for new channels and services, public or commercial, must be sought from the Secretary of State for Culture, Media and Sport.

BBC World Service is funded by Grant-in-Aid and is accountable to Parliament through the Foreign and Commonwealth Office (FCO). Although it is editorially independent, its aims and priorities are agreed with the FCO.

Accountability and internal control

The responsibilities in relation to internal control are clearly defined. The Board of Governors is ultimately responsible for the proper use of public money whilst the Executive Committee is responsible for maintaining an adequate system of internal control and for reviewing its effectiveness. The respective responsibilities of the Board of Governors and Executive Committee and the external auditors are set out on pages 85 to 86. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The Board of Governors and Executive Committee consider that there is an ongoing process for identifying, evaluating and managing significant risks faced by the BBC. The process has been in place for the year ended 31 March 2004 and up to the date of approval of this Annual Report and Accounts.

Financial reporting and going concern

A review of the financial position of the BBC is included on pages 97 to 98. This provides an assessment of the BBC’s performance and current position.

The going concern basis has been adopted in the preparation of the financial statements as the Board of Governors and the Executive Committee believe that the BBC has adequate resources to continue its operations for the foreseeable future.

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Compliance

The key aspects of the control environment operating throughout the year are described below under the following headings:

Risk management

The management of risk within the BBC is considered to be most effectively managed through the engagement of the entire Executive Committee. For that reason, risk management is not delegated to a sub-committee.

Each of the BBC’s top risks has a nominated owner on the Executive Committee who is responsible for ensuring that progress on the management of their given risk is reported to all of the Executive Committee. The BBC’s top risks and associated action plans have been reviewed during the year. An annual update on each of these key risks is provided to the Executive Committee with a progress report every six months. The Audit Committee, on behalf of the Board of Governors, considers the operation of the risk management process including the management of the BBC’s top risks.

The director of each division has a clear responsibility for the identification and management of risks facing their business. Divisional management has reviewed the risks associated with the achievement of its divisional objectives. Consideration of these risks includes a review in each division of the impact of the BBC’s top risks and reporting on the management of those risks via reports to the Executive Committee. The risks identified, and the actions planned in response, are maintained in a risk register in each division which is verified by the Risk and Internal Control Managers.

Internal Audit

The BBC has an Internal Audit department of 27 staff incorporating Operational Audit, Systems Audit and Occupational Risk Audit. Internal Audit’s authority is derived from its joint independent reporting relationship to the Audit Committee and to the Director-General. The scope of Internal Audit includes the examination and evaluation of the adequacy and effectiveness of the BBC’s systems of internal control and the quality of performance in carrying out assigned responsibilities. The work programme of Internal Audit is unrestricted, covering all BBC public service activities and, in addition, BBC Commercial Businesses, BBC World Service & Global News, BBC pension schemes and BBC charities. Internal Audit exercises the BBC’s right of audit, where such right is provided by contract, over external parties including independent production companies and other key suppliers of outsourced services.

Internal Audit undertakes regular testing of control systems and core business processes under a plan agreed with the Audit Committee. The audit plan, which is reported twice a year, is based on a continuing assessment of key risks, monitoring compliance of key systems and processes, and ensuring value for money to the licence payer. The results of testing are reported at each meeting of the Audit Committee which scrutinises the operation of the BBC’s controls throughout the year.

Divisional controls

The divisions’ management has responsibility for ensuring that existing controls and procedures are followed. Key controls over major business risks include maintaining and regularly updating risk registers, performance review and exception reporting. Reviews by Internal Audit monitor the operation of divisional and subsidiary controls, to ensure that they are consistently applied and as a minimum meet the BBC-wide control policy.

BBC business and broadcast continuity

The BBC Business & Broadcast Continuity team work with the BBC divisions and partnering companies to protect and to mitigate risk to the various business areas in the BBC. This is achieved through the implementation of a robust system of business continuity planning, rehearsal and disaster recovery preparedness. In some instances specific projects are initiated to improve operational resilience where the risk is deemed high. The BBC’s business demands that it is positioned to not only broadcast and inform in virtually any circumstance, but that other lines of business continue with a minimum of disruption. This is particularly important in light of current geopolitical events. The safety and security of BBC people and assets remain the priority in contingency planning.

Computer systems

The BBC has established controls and procedures over the security of data held on computer systems. Arrangements are in place for computer processing to continue and data to be protected and retained in the event of the failure of the BBC’s own systems for whatever reason. The Internal Audit function includes a specialist Systems Audit team who review the continuing integrity of all systems within the BBC including computer and broadcast critical systems.

Controls over outsourced transaction processing

The majority of the BBC’s finance transaction processing is outsourced to a service company, Media Accounting Services Limited (Medas), a wholly owned subsidiary of EDS which is independent of the BBC.

The collection of the licence fee is outsourced to Capita. The BBC monitors the provisions that Capita have put in place to ensure the collection of the licence fee in the event of business interruption.

Safeguards are in place to ensure the integrity of the BBC’s transaction processing and collection data and to provide alternative methods in the event of a failure of the core processes.

The Director of Finance, Property & Business Affairs has established monitoring procedures to review the performance of key suppliers of outsourced services on a regular basis. These include review by Internal Audit through a programme of work informed by continuing assessment of key risks and issues. Performance data, financial reporting and compliance statistics are reported to the BBC on a monthly basis.

Whistle-blowing

The BBC has a ‘whistle-blowing’ or ‘protected disclosure’ policy. The policy facilitates the anonymous communication to the BBC of any incident in which there is a suspicion that there has been a breach of the BBC’s codes. The process is administered by an independent external company to ensure anonymity. Each reported incident is notified to the Head of Business Assurance who ensures that every incident is investigated, a response communicated and action taken as appropriate.

Financial reporting and business performance

Individual divisions are responsible for ensuring compliance with the BBC’s financial reporting system.

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The BBC has a comprehensive system for reporting financial results and business performance. During the year each division prepares monthly reports and accounts. These results are reviewed locally and are scrutinised by Group Financial Control. The consolidated results of the BBC are reviewed at the Executive Committee and the Board of Governors’ meetings each month.

Each financial year the divisions prepare detailed budgets for the following financial year and update long-term plans. The annual budget of each division is reviewed by the Director of Finance, Property & Business Affairs. The overall BBC budget is submitted by the Director-General and the Executive Committee to the Board of Governors for approval. The performance of each division is subject to continuous monthly monitoring and at the end of every year each division is subject to a rigorous performance review to verify how effectively they have met their objectives.

Fraud awareness

Although incidents of fraud are rare, the BBC takes its responsibilities to minimise the risk of fraud, and the consequential loss to the licence payer, very seriously. During the year the BBC has completed a substantial external review of its anti-fraud measures. The anti-fraud policy, clarifying overall and ultimate responsibility for ensuring that the appropriate controls are in place to minimise the risk of fraudulent activity, and the fraud response plan have been updated.

An anti-fraud group has been set up, chaired by the Head of Business Assurance and includes representatives from Policy & Legal, BBC People and operational and financial input from across the divisions. The key objectives of the group are to embed measures to minimise the risk of fraud and raise overall fraud awareness across the BBC. Divisions are responsible for reporting any suspicions of fraudulent activity to the Investigations Unit and ultimately to the Head of Business Assurance.

Governors’ Audit Committee

During the year the Audit Committee comprised exclusively of Governors: Dame Pauline Neville-Jones (Chair), Dermot Gleeson, Sir Robert Smith and Baroness Hogg (retired February 2004). The Audit Committee complies with the recommendations within the Smith Report that at least one member of the Audit Committee has significant, recent and relevant financial experience. Members of executive management attend meetings by request of the Audit Committee.

The key responsibilities of the Audit Committee are to: review management’s and Internal Audit’s reports on the effectiveness of systems for internal financial control, financial reporting and risk management review the Internal Audit work programme and ensure that the internal audit and risk management function is adequately resourced and has appropriate standing approve the appointment or dismissal of the Head of Business Assurance consider management’s response to any major external or internal audit recommendations consider the appointment of the external auditors and assess independence, ensuring that key partners are rotated regularly oversee the process for selecting the external auditors

recommend the audit fee to the Board and approve any fees in respect of non-audit services provided by the external auditors and ensure that the provision of non-audit services does not impair the external auditors’ independence or objectivity discuss with the external auditors the nature and scope of the audit and review the auditors’ quality control procedures and steps taken by the auditors to respond to changes in regulatory and other requirements review the external auditors’ management letter and management response review the performance and effectiveness of the external auditors review and challenge, where necessary, the actions and judgements of management in relation to the annual financial statements and financial review satisfy itself that all regulatory compliance matters have been considered in the preparation of the Annual Report and Accounts review the BBC’s procedures for handling allegations from whistle-blowers review the Audit Committee’s terms of reference and effectiveness on an annual basis

In reviewing the financial statements of the BBC the Audit Committee considers any significant issues and the appropriateness of accounting policies adopted in relation to significant or unusual transactions where more than one policy may apply.

The Chair of the Audit Committee reports to the full Board of Governors after each meeting of the Committee.

Independence of external auditors

The BBC complies with the guidance governing the conduct of external audit set out in the Combined Code and recommendations from the Smith Report for audit committees. The external auditors appointed by the BBC are KPMG LLP as financial auditors and PricewaterhouseCoopers LLP act as the fair trading auditors (see pages 82 to 86). Both the Audit Committee and KPMG LLP themselves have safeguards in place to avoid the possibility of the auditors’ objectivity and independence being compromised.

The Audit Committee regularly reviews the independence of its external auditors ensuring that key partners are rotated regularly. The Audit Committee holds discussions with the external auditors without management being present. The Audit Committee reviews the level of non-audit fees paid to KPMG LLP. Any significant consulting work is put out to competitive tender. Recruitment from KPMG LLP into any senior management position in the BBC requires the prior approval of the Audit Committee.

The BBC’s policies in relation to services procured from the external auditors are: all non-audit services proposed to be commissioned from the external auditors must be notified to, and approved by, the Audit Committee above an established de minimus level the planned work must be submitted to competitive tender and, in the event that the external auditors are to be awarded the contract, the prior approval of the Audit Committee must be obtained the external auditors are specifically excluded from being considered for certain types of work where the effect could be to prejudice their ability to express an independent and objective opinion

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Value for money reviews

During the year the BBC has extended its programme of reviews to include a greater focus on value for money (VFM) reviews across the BBC. The key focus of these reviews is value for money and scrutiny over public expenditure. The Audit Committee has put in place a rolling programme of VFM reviews to be performed by Internal Audit and external agencies including the National Audit Office (NAO). The first of the VFM reviews commissioned from external agencies by the Audit Committee is the NAO’s review of the BBC’s investment in Freeview. The Board of Governors will lay before Parliament the NAO’s findings and the BBC’s response this summer.

Governors’ Property Committee

The Governors’ Property Committee was formally established as a sub-committee of the Board of Governors in October 2003.

The Property Committee supervises management’s implementation of the BBC’s property strategy including monitoring the progress of the redevelopment of Broadcasting House, London. However, the Audit Committee remains the authority by which the Corporation determines satisfactory compliance with internal and external controls including property projects.

During the year the Property Committee was comprised exclusively of Governors of the BBC: Gavyn Davies (resigned January 2004), Rt Hon The Lord Ryder, Sir Robert Smith and Dermot Gleeson. The Property Committee meets as required.

The key responsibilities of the Property Committee are to: satisfy itself that major property projects within the agreed property strategy are progressing according to plan and budget be informed of any significant variances or changes in advance of requests by management to the full Board of Governors for approval of increased expenditure (in line with the investment guidelines covering approval levels) be informed in advance of any proposal by management to dispose of property assets be informed of any significant issues and ensure, where necessary, these are referred to the Audit Committee for further scrutiny

Governance arrangements for Commercial Businesses

In July 2002 the Secretary of State for Culture, Media and Sport approved the establishment of a new subsidiary, BBC Commercial Holdings Limited, to coordinate and manage the activity and financing needs of the principal commercial subsidiaries. The BBC’s public service aims are enshrined in the company’s Memorandum of Association and many of its powers, including the power to appoint directors, are exercisable subject to prior approval of the Board of Governors.

The Board of Commercial Holdings Limited Audit Committee (CHAC) was established in September 2003 with the responsibility to consider all Audit Committee papers relating to the Commercial Businesses. The CHAC members are independent of the operational management of the Commercial Businesses. Matters of significance are taken and discussed by the Governors’ Audit Committee.

The objective of the CHAC is to ensure that the BBC Commercial Businesses meet the highest standards of corporate governance particularly with respect to internal control and risk management and operate within the framework of the Governors’ Audit Committee. The Chair of CHAC reports to each Governors’ Audit Committee meeting.

Events of the year

The BBC’s system of controls, as stated above, is designed to manage risks rather than eliminate them entirely. During the year the BBC has reviewed lessons learnt from the following incident and has updated controls where considered appropriate.

The Hutton Inquiry

The BBC’s response to the Hutton Inquiry is covered in detail on pages 4 to 5.

4 Other corporate governance responsibilities Human resources

The BBC continues to hold the Investors in People (IiP) accreditation across the whole BBC which it regards as one of the key processes for evaluating progress in people management and development. It is taking active steps to improve its performance in all areas by a programme of rigorous self-assessment every year. The BBC invests a considerable amount of money and time in training and developing its staff as detailed on pages 72 to 73.

The BBC monitors staff views through an annual staff survey. It also has various consultation mechanisms including, at corporate level, the BBC Forum. Regular meetings are also held with the recognised unions: BECTU (Broadcasting Entertainment Cinematograph and Theatre Union), the NUJ (National Union of Journalists) and AMICUS (formerly the AEEU).

Internal communication

Progress in improving internal communication is measured by an annual survey of staff opinion conducted by MORI. The latest of these, conducted in December 2003, showed that the BBC continues to make further progress in the key areas of internal dialogue, understanding, attitude and behaviours. The BBC is now very firmly in MORI’s group of top ten organisations in the UK for internal communications and the BBC’s practice has attracted international interest in this area during 2003/2004.

Occupational risk management

The BBC has continued to seek continuous improvement in its delivery of risk management performance, including health and safety, and has reinforced its professional support structure and competencies to reflect the wider occupational risk management role. BBC Occupational Risk Management will focus more strongly on the delivery of policy and associated guidance, the delivery of enabling projects, and the monitoring and management of legislative and BBC policy compliance.

The principles of good risk management and the health and safety measures developed to deliver them have led to an improving statistical trend in health and safety performance. UK reportable accidents for the past 12 months decreased from 47 to 38 as defined by the UK Reporting of Injuries, Diseases and Dangerous Occurrence Regulations 1995 – RIDDOR. Sadly, in April 2003, during the coverage of the war in Iraq, where at its height the BBC deployed 329 people, there were two major incidents leading to two fatalities and a major injury. Following the hostilities and

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due to the heightened terrorist threats the BBC has put in place additional measures in support of its health and safety policies including a specific, professional support team for high risk areas, standard operating procedures for overseas bureaux in hostile environments, security advice for new build projects and the commissioning of a review of the Corporation’s security strategy.

Of the above RIDDOR reportable events, the BBC reported one fatality as a result of an asbestos related occupational disease and two major injuries. Taking the accidents which occurred to BBC employees in the UK, the accident incident rate per 100,000 employees for 2003/2004 was 134, representing a 29% reduction from the incident rate in the previous year of 188.

Suspected cases of occupational related ill health of staff referring and seen by BBC medical officers also continued the downward trend from the previous year. In 2003/2004, the incidence rate of suspected cases of occupational illness (of all types) was 17.51 per 1,000 employees per annum. This compares with 17.78 per 1,000 employees per annum in 2002/2003.

The UK Health and Safety Executive (HSE) served an Improvement Notice in respect of insufficient corporate arrangements under the Construction (Design and Management) Regulations 1994. This area of the Corporation’s policy and arrangements were consequently enhanced to comply with the enforcement notice. The BBC had no convictions for health and safety offences.

An Executive sub-committee has been established to review progress on achieving consistency and compliance on all occupational risk areas and to champion issues across the BBC. In addition, an independent Occupational Risk Audit team was established within Internal Audit.

As part of the BBC’s compliance programme a number of reviews and audits have been undertaken including a review of policy, organisation and arrangements for the property vehicle (the legal entity which is the mechanism for management of the BBC/Land Securities Trillium Partnership) to ensure clarity of responsibilities, and that monitoring and review processes are in place and adequate to the risks. These will continue to be a part of the commitment to improved health and safety and ensures that the BBC continually reviews progress against the recommendations arising from monitoring and audit activities.

The HSE undertook a series of planned inspection visits to the BBC’s television production and broadcasting activities in London, focusing on the Government’s Revitalising Health and Safety strategy. The HSE’s report confirming their observations and recommendations was formally presented to the BBC at the end of May 2004.

Several major initiatives were launched during the year including the use of web-based Display Screen Equipment training and assessment tools, an events management system, integration of health and safety content and Safety Adviser attendance within the BBC-wide Leadership Programme and the establishment of a Learning Board for health and safety. Greater emphasis has been placed on seeking improvements to the procurement processes, for example in the management of pre-vetted contractors and the development of ergonomic guidelines and advice to BBC Property and departmental managers on furniture selection and procurement. Work also continues on projects to improve the effectiveness of internal

monitoring mechanisms through the increased use of database and web technology.

Good progress was made on the action plans following completion of fire risk assessments for all BBC buildings and, as part of a major risk reduction project for our key properties, on means of escape for disabled people. Work is already underway to prepare for the changes to the Noise at Work Regulations. Although the changes will become law in 2006, the broadcast and entertainment industry will have until 2008 to comply. The Electrical Safety Project continued with the publication of five of 21 Electrical Safety Guidance Notes (a further eight are in the drafting stages) covering all aspects of electrical safety in the BBC.

The BBC continues to promote knowledge of, and contribute to, the development of safe practices within the broadcast and production industries through joint industry bodies as well as publication of health and safety material on the internet.

5 Governors’ remuneration report

This report sets out the BBC’s policy on the remuneration of the Board of Governors and of members of the Executive Committee. Although the BBC is exempt from the requirements introduced by the Directors’ Remuneration Report Regulations 2002 and those of the Financial Services Authority, the report has been prepared as if those requirements did apply wherever the disclosure provisions are relevant and applicable. Only the following sections of the Governors’ remuneration report are subject to audit: Remuneration received and Governors and Executive Committee pensions.

Governors’ Remuneration Committee: constitution and operation

The remuneration policy for members of the Executive Committee is set by the Remuneration Committee, a sub-committee of the Board of Governors. This Committee deals with all matters relating to the remuneration of members of the Executive Committee and is accountable to the Board of Governors for the determination and maintenance of overall remuneration policy and review and agreement of Executive Committee basic salaries, bonus awards and benefits, including pension arrangements. The Committee considers the performance of individual members of the Executive Committee before recommending their annual remuneration and bonus awards to the full Board of Governors.

The members of the Committee during the year were Gavyn Davies (Chairman, resigned January 2004), Baroness Hogg (retired February 2004), Dame Pauline Neville-Jones and Rt Hon The Lord Ryder. Michael Grade has been a member of the Committee since his appointment as BBC Chairman. Sir Robert Smith also became a member of the Committee in May 2004. In addition, meetings are attended by the Director-General who advises on matters relating to the other members of the Executive Committee and the overall performance of the BBC and by the Director of BBC People. Neither is present when matters concerning their own remuneration are considered.

In its constitution and operation the Committee complies with the Combined Code on Corporate Governance. The Committee places high value on the independence of its decision-making processes. In consultation with the Director of BBC People, the Committee takes specialist advice from external professional advisers on particular remuneration matters, particularly external market practice. During the year, the Committee nominated

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Compliance

and received independent advice from the Hay Group on comparative market data to assist in the determination of pay and benefits for the Executive Committee.

Governors: remuneration policy

The Governors receive a fee determined by the Secretary of State for Culture, Media and Sport. They are additionally reimbursed for expenses incurred on BBC business. Expenses regarded by the Inland Revenue as taxable are settled in full by the BBC, including any related tax payments, and reported as benefits in the table on page 93. The increase in annual remuneration notified for 2003/2004 was 2.25% (2002/2003 2.5%).

Executive Committee: remuneration policy

The remuneration policy for Executive Committee members tries to balance the BBC’s status as a public corporation (and the expectation that all areas of spend, including executive remuneration, must deliver value to the licence payer), with the fact that the BBC operates in a competitive, commercial environment and needs to offer remuneration that enables it to attract, retain and motivate high calibre individuals with the skills and abilities required to lead the BBC.

In doing so, the remuneration policy seeks to: remunerate individuals fairly for individual responsibility and contribution, while providing an element of performance-related pay, reflecting the underlying performance of the BBC take into account wider salary policy and employment conditions within the rest of the BBC and the relationship that should exist between the remuneration of Executive Committee members and that of other employees have regard to the market median levels of total cash reward of relevant comparator organisations in both public and private sectors

The Committee’s approach to policy going forward will continue to reflect these principles, underpinned by regular review and monitoring of remuneration policy and practice in organisations outside the BBC.

External data reviewed by the Committee shows that salaries paid at main board level across the private sector as a whole, and in the media industry in particular, are significantly higher than in the BBC for organisations of similar size and complexity, while the opportunities for annual and long-term bonus payments are also much greater. Conversely, the pay levels for senior civil servants and other public sector managers are generally lower. The remuneration levels set by the Governors fall between the pay of the most senior managers in the public sector and those in comparable commercial businesses to reflect the BBC’s unique position as a publicly-funded organisation operating and competing in a commercial industry.

Elements of remuneration

Basic salary

Basic salaries are reviewed in August each year, taking into account external market levels and internal comparisons as well as the individual’s responsibilities and performance. The basic salary is paid as a fixed sum monthly in cash.

Annual bonus

The Committee recognises the importance of maintaining a balance between basic salary and an annual bonus scheme reflecting individual performance and contribution. Annual bonuses continue to have a maximum level of 30% of base salary and individual awards are based on a mix of qualitative and quantitative targets and measures.

The achievement of BBC-wide objectives accounts for up to 30% of the maximum bonus, with the same level of award applying to all members of the Executive Committee, thereby reinforcing the value and importance of collective performance. Achievement of divisional objectives accounts for up to 40% and individual performance and contribution for the remaining 30% of any award. For the year under review the targets related primarily to objectives which were set by the Board of Governors and published in the BBC Annual Report and Accounts 2002/2003.

In the case of the Commercial Businesses (BBC Worldwide Limited and BBC Ventures Group Limited), the annual bonus plan is directly linked to the achievement of specific financial performance targets relating to sales, cash flow and profit before interest and tax (PBIT). Whilst the maximum annual bonus opportunity is 30% in common with other members of the Executive Committee, the framework is based on: for the Chief Executive of BBC Ventures Group Limited, up to 80% of any award for the achievement of PBIT and cash flow targets and up to 20% for individual performance for the Chief Executive of BBC Worldwide Limited, up to 67% of any award for the achievement of sales, cash, and PBIT targets and up to 33% for individual performance

Bonuses are reflected in the financial statements on an accruals basis for the performance period under review. Actual payments are made in July each year.

A long-term incentive plan is also in place for the Chief

Executive of BBC Worldwide Limited which provides for a bonus of up to a maximum 20% of salary based on the achievement of headline BBC cash flow targets over a three-year period. The three-year plan period in the scheme which commenced in April 2001 ended on 31 March 2004 and generated a payment to Rupert Gavin of 13.53% of salary. Any awards under the plan are reflected in the financial statements on an accruals basis.

Benefits

In addition to salary and bonus, the main contractual benefits provided are a car and fuel allowance, private health insurance, pension and life insurance. With the exception of the post of the Director of Nations & Regions, it has been the policy for some years that new appointees to the Executive Committee are not eligible for provision of a chauffeur-driven car. The Director-General’s contract provides for a chauffeur-driven car, but no additional entitlement to a personal car or fuel allowance.

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Pensions

All members of the Executive Committee are eligible to participate in the BBC Pension Scheme which provides salary-related pension benefits on a defined benefit basis, with an accrual rate of 1/60th of the final salary per year of service, subject to the Inland Revenue earnings cap where appropriate. Only basic salary is pensionable. The Scheme provides for early retirement on medical grounds and life insurance cover of four times salary.

A variety of special arrangements have been made for those individuals who have joined the BBC late in their careers whose earnings exceed Inland Revenue limits, including funded and unfunded arrangements outside the BBC Pension Scheme.

Employment contracts

The policy of the Remuneration Committee is for the contracts of employment of Executive Committee members to contain a maximum notice period of one year. Each contract expires on the 60th birthday of the director which is the normal BBC retirement age, but is subject to earlier termination for cause or if notice is given under the contract. There is no entitlement to any additional remuneration in the event of early termination other than in the case of termination on grounds of redundancy.

Outside interests

Where there is no potential for conflict of interest and with the prior agreement of the Board of Governors, members of the Executive Committee may hold external directorships. In principle, no more than two external directorships can be held at the same time, of which only one should be in a commercial organisation. Governors assess such requests against rigorous criteria to ensure that conflicts of interest do not arise. Remuneration which arises from directorships agreed since the introduction of this policy in 1997, or subsequent to appointment, is paid to the BBC. During the year only two Executive Committee members held appointments as executive director of an external organisation.

Remuneration received

The remuneration of the Board of Governors or the Executive Committee members appointed or leaving during the year is included in respect of their period of membership only.

Total Total

* Appointed to the Committee part-way through 2002/2003

1) Included in the remuneration for Jana Bennett is £11,887 being the final balance of relocation costs incurred during the year (2003 £167,000) 2) The 2003 bonus figures for Andy Duncan and Carolyn Fairbairn include a payment of £5,000 each reflecting their contribution to securing the Digital Terrestrial Television (DTT) licences 3) Carolyn Fairbairn took a period of unpaid leave in 2003 4) Included in the benefits for John Willis is £72,440 in respect of payments made in connection with his relocation from the USA in order to take up his appointment with the BBC

5) The 2003 bonus figure of Alan Yentob includes an additional payment of £20,000 in respect of his on-screen presentation activity during that year 6) The long-term incentive plan is in respect of Rupert Gavin 7) Greg Dyke resigned from the Executive Committee on 29 January 2004 but remained a member of BBC staff until 29 February 2004. He was paid £488,416 in line with his contractual entitlement, including £384,000 in lieu of notice 8) Roger Flynn resigned from the Executive Committee on 31 March 2004. His current contract expires on 30 September 2004 when he is due to be paid £301,625 in line with his contractual entitlement, including £241,325 in lieu of notice

Governors and Executive Committee pensions

The BBC provides pension benefits to the Chairman of the Governors and to Executive Committee members. Details of defined benefit entitlements to Executive Committee members who served during the year are shown in the first five columns of the following table. The BBC also makes contributions to money purchase schemes in respect of certain members as shown in the last two columns. Gavyn Davies waived his entitlement to pension benefits.

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Compliance

* Appointed part-way through 2002/2003

1) Glenwyn Benson resigned as a director on 8 June 2003, but was still an active member of the pension scheme as at 31 March 2004. The accrued pension has been calculated and valued as at 31 March 2004 2) Greg Dyke left the BBC and the scheme on 29 February 2004. The accrued pension on leaving the scheme has been valued as at 31 March 2004 3) John Willis was appointed during the year. The increase in transfer values and in accrued pension in the above table is in respect of the period from his appointment on 9 June 2003 4) The accrued benefits shown for John Willis assume that he will complete the two-year service period required before benefits can be claimed 5) The transfer value of accrued pension benefits represents the estimated cost to the pension scheme of providing the pension benefit accrued to date. The value is affected by a number of factors, which include age of individual, pensionable salary, years of pensionable service and investment market conditions at the date of calculation (in accordance with Actuarial Guidance Note GN11). It is not a sum paid or due to the individual and therefore cannot be meaningfully added to remuneration. The effect of the investment market conditions on the transfer value varies according to the person’s age. For older members the calculation reflects the yields on index-linked gilts, while for younger members the calculation reflects the dividend yield on the FTSE All-Share Index

6 Programmes, channels and promotions Governors’ Programme Complaints Committee

During the year the Governors’ Programme Complaints Committee (GPCC) was comprised exclusively of Governors: Sir Robert Smith (Chair), Professor Fabian Monds, Dame Pauline Neville-Jones, Angela Sarkis and Ranjit Sondhi.

The GPCC is responsible for fulfilling the Charter requirement that the Board of Governors ensures that complaints are properly handled by the BBC. This remit is fulfilled by the independent oversight of both the strategic approach to complaints handling, and monitoring the effectiveness of its processes, to ensure both serve the public interest and reflect best practice. In particular this involves: an understanding of good practice in complaints handling an annual review of the BBC’s complaints-handling processes and performance, with the periodic review of the complaints-handling strategy resulting from issues raised in the annual review

review of a quarterly complaints report from BBC Information review of the quarterly Complaints Bulletin published by the Programme Complaints Unit

In line with the GPCC’s responsibility for monitoring the effectiveness of complaints handling by BBC management, it is also the specific function of the GPCC to consider appeals against decisions and actions of the Programme Complaints Unit (PCU) or of the Directors of BBC Divisions in dealing with serious editorial complaints. In considering appeals, it receives independent advice on editorial matters from an external adviser.

The GPCC reports its activities to the full Board of Governors. For further information on complaints handling during 2003/2004, see pages 78 to 79.

Upholding editorial standards

The Governors ensure that the BBC maintains high editorial standards, monitoring its compliance with the BBC Producers’ Guidelines and with the Code of Impartiality and Accuracy included in them.

The issues raised by Andrew Gilligan’s report at 6.07am on the Today programme on 29 May 2003 are covered in the section on the Hutton Inquiry on pages 4 to 5. Likewise, the lessons learned by the BBC and the steps it has taken since to strengthen its editorial controls are also covered in the same section.

Outside the Hutton Inquiry, the Governors were satisfied that in 2003/2004 overall the BBC met the standards expected of it. During their annual review of editorial issues in April this year they noted a range of matters that had tested the BBC’s editorial standards over the year.

In July last year, the Governors requested a review of the BBC’s guidelines for staff writing in external publications and new rules were approved by the Board of Governors and implemented in November last year. Details of these new rules can be found on page 5.

The Governors noted action taken by management to safeguard the BBC’s impartiality following an article by Robert Kilroy-Silk in the Sunday Express. Management judged that the views expressed undermined the perception of Robert Kilroy-Silk as an impartial presenter of a daily discussion programme dealing with topical issues. The programme was suspended and subsequently Robert Kilroy-Silk stood down as presenter.

In 2003 the Governors strengthened their oversight of impartiality across the BBC’s output. New measures included commissioning an independent monthly tracking survey of public perceptions of BBC impartiality and independent reviews of editorial output on specific issues. The monthly tracking survey has been in operation since February 2004 and will report to the Board of Governors quarterly. The survey will help inform the Governors in their assessment of the BBC’s performance in this area. The Board of Governors commissioned independent reviews of editorial output on two separate issues over the year. In April 2003, Chatham House conducted an independent review of the BBC’s coverage of Israel and Palestinian issues. The findings concluded that BBC coverage achieved impartiality and balance and was informative and reliable. The second editorial review, of rural affairs, was in three parts: independent panel review; focus group research; and content

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analysis. This format has been approved by the Board of Governors as the template for future reviews. The independent panel reviewing rural affairs output concluded that the BBC took rural affairs seriously but that the diversity of rural areas was not always understood by metropolitan-based broadcasters (for further information see page 21). The report’s findings and its recommendations have been communicated to production areas across the BBC, not just BBC News, and steps have been taken to improve the BBC’s coverage. A progress report of implementation was presented by management to the Board of Governors in May 2004.

The Governors noted the importance of careful observation of the watershed, and the trust which audiences placed in the BBC to schedule appropriately. They were concerned, therefore, about a serious breach of standards in relation to an EastEnders storyline featuring rape. In particular, an intense interaction between one character who had been a victim of rape, and another recalling her memories of her mother being raped, had been inappropriate for pre-watershed viewing. Complaints to the Programme Complaints Unit about the episode were upheld. The Board of Governors learned that discussions between Editorial Policy, the programme and the Channel Controller took place only very close to broadcast and that action was being taken to improve the mechanisms for discussion between the relevant departments at an early stage when contentious subjects are proposed for programmes scheduled for broadcast pre-watershed. More broadly, the Governors noted that a BBC project group is considering how the BBC might better label challenging content in a context where the use of video recorders would erode the current effectiveness of the watershed.

New service approvals

All new BBC public services launched since 1 January 1997 require the approval of the Secretary of State for Culture, Media and Sport. The key terms of the approval are also contained in the Statement of Programme Policy for each of these services.

The BBC Statements of Programme Policy 2003/2004 included a large number of measurable commitments. The table on pages 58 to 67 shows how the BBC met these and details any exceptions. The Digital Curriculum service is separately reported below as it is yet to be launched.

In 2003, the Secretary of State for Culture, Media and Sport launched an independent review of BBC Online, led by Philip Graf. The BBC awaits publication of the review.

In 2004, the Secretary of State for Culture, Media and Sport launched two independent reviews, one of the BBC’s digital television services and the other of the BBC’s digital radio services. The consultation process closed on 11 June 2004.

Digital Curriculum

In approving the Digital Curriculum service in January 2003, the Secretary of State for Culture, Media and Sport set the BBC a number of conditions, including meeting the undertakings given by the BBC itself. Each year, the BBC will report on its compliance with those conditions that are relevant to activity during the year. Work on developing the service began in 2003/2004 (leading up to the planned launch in 2006) and

during the year the BBC took the following steps to comply with specific conditions of the approval or undertakings: In October, the BBC agreed with the Government’s education technology agency, BECTA, the approach to defining the broad areas for each subject to be covered, and published this on the BBC’s website.

In October, after a competitive EU tender, the BBC signed a managed service contract with Microsoft for the provision of the technical platform for the service.

The BBC is developing content in compliance with the conditions set by the Secretary of State for Culture, Media and Sport. Fifty per cent of the content will be commissioned from external suppliers. During the year, a selection process was carried out under EU Public Procurement Regulations and a list of preferred suppliers is being published this summer.

The BBC has started to work with the Government’s Curriculum Content Online Advisory Board in developing the service. The Board includes representation from others in the industry.

UK programme quotas

Under the Communications Act 2003 the BBC has a duty to secure that not less than 25% of the amount of time allocated to the broadcasting of qualifying television programmes is allocated to the broadcasting of a range and diversity of independent productions. This provision was formerly contained in the Broadcasting Act 1990 which required the Director-General of Fair Trading to report to the Secretary of State periodically on the extent to which the BBC had, in his opinion, performed that duty. Following the Communications Act 2003, Ofcom has assumed this duty and will report on performance for the period 2003/2004 onwards.

The Director-General of Fair Trading’s report for the period

1 April 2002 to 31 March 2003 was published in October 2003.

It concluded that while the BBC has achieved a satisfactory range and diversity of independent productions, it had not met the quota, achieving only 21%.

As noted in last year’s legal compliance report, the number of takeovers by broadcasters of major independent producers has the effect of removing their status as independents for the purposes of UK legislation and makes it increasingly difficult for the BBC to meet the quota. If such production companies had been counted towards the 2002/2003 total, the BBC would have met its quota. The relevant secondary legislation has been amended to reinstate such companies. The BBC fully expects to exceed its quota for 2003/2004 although Ofcom has yet to report on the BBC’s performance for the year. Producers (such as Planet 24) owned by UK broadcasters are still unable to claim independent status.

EU programme quotas in the calendar year 2003

European Community legislation requires Member States to ensure that broadcasters reserve for European works a majority proportion of their television transmission time excluding the time devoted to news, sports events, games, adverts, teletext services and teleshopping. The legislation also requires broadcasters to reserve at least 10% of their transmission time for European works (excluding works of the kind described above) made by independent producers.

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Compliance

The BBC exceeded EU quotas in the calendar year 2003. Of the relevant BBC One and BBC Two output, 83% was of European origin (81% in 2002) and 15% was made by European independent producers (13% in 2002). Of the relevant output of all BBC channels (including BBC Choice, now BBC Three, BBC Four, CBeebies, the CBBC Channel and BBC News 24), 86% was of European origin and 21% was made by European independent producers.

European channel broadcasting regulation

The BBC broadcasts two television channels in Europe, BBC Prime and BBC World. Both channels were originally operated by European Channel Broadcasting Limited but on

1 December 2002 the Secretary of State for Culture, Media and Sport approved the transfer of the business and assets of the BBC World channel to a new company, BBC World Limited, which became a wholly-owned subsidiary of BBC Commercial Holdings Limited. BBC Prime continues to be operated by European Channel Broadcasting Limited, a wholly-owned subsidiary of BBC Worldwide Limited. Both channels are now licensed by Ofcom as television licensable content services.

In accordance with the principles on which the Secretary of State for Culture, Media and Sport’s approval was originally granted: arm’s length trading relationships were maintained between the BBC on the one hand and companies responsible for the BBC World and BBC Prime channels on the other the companies concerned with operating the two channels complied fully with the BBC’s Fair Trading Guidelines and with applicable provisions of EU law the programmes shown on the two channels complied, where applicable, with the relevant Ofcom (formerly ITC) codes and the BBC-made programmes shown on those channels were produced in accordance with BBC Producers’ Guidelines

On-air promotions: Office of Fair Trading undertaking

Following the 1992 report of the Monopolies and Mergers Commission (on the publicising in the course of broadcasting, of goods supplied by the broadcaster), the BBC gave an undertaking to the Office of Fair Trading (OFT) to use only still trails to give information about BBC magazines. The terms of the undertaking also commit the BBC not to exceed more than seven minutes as an aggregate across a seven day period in relation to on-air promotions of BBC magazines on its television services. Although the legal obligation applies only to BBC magazines, the Governors’ Fair Trading Commitment commits to apply the spirit of the undertaking to all on-air promotions of commercial products.

From 1 April 2003 to 31 March 2004 the total on the BBC’s television services for all BBC magazines (including Radio Times) was 2 hours, 27 minutes and 10 seconds of transmission, which averages out at 2 minutes, 50 seconds in a seven day period. The total for all commercial products (including BBC Worldwide Limited and independent products) was 4 hours, 2 minutes and 20 seconds of transmission, which averages out at 4 minutes and 40 seconds in a seven day period.

Trails for non-BBC products have also been tracked. In the same period as above, there was 20 minutes and 50 seconds worth of promotion for independent products. This averages out to 24 seconds per seven day period on the BBC’s television services. The BBC continues to anticipate a review of the OFT undertaking, although no date has yet been announced.

7 Cost of compliance

Historically the BBC’s cost of compliance has not been significant. However, one impact of the Communications Act 2003 will be to increase these costs. We will be reporting on these costs in future years.

8 Donations and acknowledgements

BBC policy is not to make political donations.

The UK Public Service Broadcasting policy is not to make donations to charities. In addition to broadcast appeals detailed on pages 79 to 80, donations to charities by BBC Commercial Businesses amounted to approximately £1,000 during the year (2003 £9,000). A total of £0.1million (2003 £1.1million) in copyright royalties was paid to Golden Jubilee Events Limited in respect of an agreement between the BBC, Golden Jubilee Events Limited and BBC Worldwide Limited in regard to producing, staging and broadcasting the Golden Jubilee musical concerts at Buckingham Palace in June 2002. Golden Jubilee Events Limited is a subsidiary of the Queen’s Golden Jubilee Trust, to which all of its profits are donated.

The BBC acknowledges financial grants from the European Commission for various technical research projects.

Board of Governors

17 June 2004

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Financial review

In the summer of 2000 a strategy was laid out which involved a significant boost to spending in order to launch new digital channels, drive digital take-up and improve the performance of the analogue channels. This strategy was to be financed by steady increases in licence fee income from reductions in evasion, household growth, inflation and the RPI + 1.5% premium on the licence fee (announced by Chris Smith as Secretary of State for Culture, Media and Sport in February 2000).

It would also make use of the public services cash balance built up prior to the licence fee settlement and of temporary bank finance for a few years with the intention that this is all paid off by the end of the current Charter period in December 2006. This is still the plan.

In this financial year the public services cash position improved compared to 2002/2003. There were net cash funds of £3million at the end of the year. The public services also make use of television licence fee payments in advance under the licence savings stamps and direct debit instalment schemes. These amounted to £109million at the year end and although these do not represent bank debt, they do count against the £200million borrowing ceiling defined in the Charter.

Income Licence fee

Licence fee revenues of £2,798million were £140million higher than last year. £52million was due to inflation, £46million to the above inflation increase in the licence fee and £42million from collection improvements.

Despite this growth, collection costs only rose £4million to £151million in the year. Capita Business Services and the AMV consortium have, in their second year, introduced online system improvements to streamline processing and improve efficiency.

The evasion rate fell from 6.3% at March 2003 to 5.7% at March 2004. The previous reported estimate for evasion at March 2003 was 7.2%, with the revision to 6.3% reflecting the new household and Census data.

Continuing success in reducing evasion and controlling collection costs mean that their combined cost has now fallen to 11.1% of total licence fee income, from 18.9% in 1991/1992 when the BBC took direct responsibility for licence fee collection from the Home Office.

Evasion

Collection costs

evasion is higher than the national average. In the latter half of the year we also increased significantly the number of enquiry officers across the UK focusing particularly in urban areas where evasion is higher and populations transient. This year also saw the launch across the UK of our new detection vans which have multiple detection methods, and are significantly more precise and faster in detecting televisions in use.

The useful recommendations made in last year’s NAO report,

Collecting the Television Licence Fee, in which Sir John Bourn, Comptroller and Auditor General, praised the BBC’s success in reducing evasion have now been fully implemented.

Commercial businesses

The key purpose of the commercial businesses is to exploit the BBC’s physical assets, capabilities and intellectual properties for profit, to provide a growing source of supplementary cash for public service broadcasting. In addition, some of the commercial businesses are expected to reduce the price of the support services they provide generating cost savings for the public services.

In 2003/2004 commercial businesses generated a cash contribution of £135million which was £11million better than the previous year. Savings for the BBC from these businesses also increased to £27million in the year. So in total the contribution from these businesses in 2003/2004 was £162million compared to £147million in the previous year.

These businesses continued to invest in programme rights, new technology and other assets to support future business growth. The businesses operated well within their bank covenants and their separate borrowing ceiling of £350million granted by the Secretary of State. At the year end their net debt was £172million and gearing was 48%.

BBC Worldwide Limited

BBC Worldwide Limited is the largest of the BBC commercial businesses and has had a steady year of trading in the face of adverse conditions in some of its markets. It contributed £141million in cash to the BBC during 2003/2004. This represents an increase of £18million over the year, £9million of which is the result of BBC World and its associated losses no longer being part of the BBC Worldwide Group, and £9million is through improved performance.

BBC World Limited

BBC World Limited has had another difficult year in a tough global advertising market further depressed by the Iraq war. Together with rising US dollar exchange rates these factors resulted in a cash outflow of £13million compared to £14million in the previous year.

BBC Ventures Group Limited

BBC Ventures Group Limited comprises four separate businesses, BBC Resources, BBC Broadcast, BBC Technology and BBC Vecta, and has had a year of consolidation following last year’s restructuring. There have been successes in gaining more external business which have offset the cyclical reduction in large events that boosted revenue the previous year. Cost savings delivered to the BBC have also risen by £4million. This year also saw BBC Broadcast investing in their move to the new Broadcast Centre at the Media Village in White City.

This year we have run a series of intensive campaigns in nine major conurbations in England, including London, major cities in Scotland and the whole of Northern Ireland, all areas where

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Financial review

Following a price benchmarking exercise covering the cost of the BBC’s public services technology requirements, a decision was made to competitively tender the contract for the provision of technology services for the next decade. This process is well advanced and is expected to produce further savings for the BBC of £20–30million a year. The successful bidder will also purchase the company, BBC Technology Holdings Limited. This process is due to complete in September 2004.

Public service expenditure

Overall spending on programmes fell in the year by £38million –this was mainly due to 2003/2004 being a year low on major sporting events. Otherwise programme spend on analogue channels stayed level.

Within that, total spending on digital services increased by £20million to £312million, which is 15% of transmitted programme spend. The new digital services BBC Three, 1Xtra and BBC 7 had their first full year of broadcasting and accordingly saw increases in expenditure. Spend on bbc.co.uk reduced during the year in order to allow more investment in interactive television (BBCi).

Expenditure on overheads in the year was £326million, a small increase of £4million. This increase is due to the acceleration and early completion of a major IT project and short-term migration costs as the new Media Village buildings are occupied. Overheads are now down to 12% of spending which is 3% better than the target of 15% set in the summer of 2000 following the licence fee settlement.

Results for the year

The BBC does not have shareholders and does not aim to make a profit. Operating surpluses and deficits represent short-term timing differences between income and expenditure which will reverse in subsequent years. The result for 2003/2004 is a deficit of £249million, £66million better than the previous year. This is in line with the BBC’s five-year plan in which the large improvement in spending on programmes and services is achieved by making use of the BBC’s historic high cash balances and temporary bank finance within the overall aim of breaking even over the Charter period.

Assets and liabilities Property

During 2003/2004, work has continued on the BBC’s programme to revitalise its real estate portfolio.

The redevelopment of Broadcasting House, the BBC’s flagship headquarters in central London, was secured through an AAA rated £813million bond. This award-winning deal took advantage of a 48-year low in bond yields. When complete in 2008, Broadcasting House will be the largest live broadcasting centre in the world and will offer the public unparalleled access into the heart of the BBC’s operations.

In west London, 1,600 staff moved into the newly completed Media Village buildings which included new offices and television channel play-out facilities, with an ongoing migration programme that should see full occupation by the end of 2004. Also at the Media Village, the shape of the new music centre was unveiled, designed by Foreign Office Architects and called The Music Box. This building, due to open in 2006, will be the home of the BBC

Symphony Orchestra, the BBC Symphony Chorus, the BBC Concert Orchestra and the BBC Singers, bringing them together in one place for the first time.

In Glasgow, work has continued on the plans to develop a new broadcasting centre for BBC Scotland at Pacific Quay and work should start on site in July 2004.

Across England real estate projects completed in the year include space in the Mailbox shopping centre in Birmingham, and new buildings in Leicester, Hull and Jersey.

All of these property developments are being carried out in order to reduce and rationalise the 395 premises in the BBC’s estate whilst updating the spaces and technology they provide and, particularly, providing significant opportunities for licence payers to visit the BBC’s operations. As part of this increased accessibility strategy the BBC has four Open Centres and four community studios where local people can learn more about both their local BBC services and new media technologies.

Pensions

The BBC, unlike many other organisations, has committed to keeping its defined benefit pension scheme to which the majority of employees belong. The net deficit of the pension scheme, based on market values on 31 March 2004 as dictated by FRS 17, has improved by £638million to £436million. This reflects short-term movements in equity values over the past 12 months and changes in interest rates but does not accurately reflect the underlying long-term health of the scheme which remains over funded on an actuarial basis.

In order to give a truer picture of the health of the scheme, we have voluntarily provided extra information about its assets and liabilities. Note 8b (pages 113 to 115) outlines additional information on the BBC Pension Scheme over and above that required by FRS 17.

International Financial Reporting Standards

The BBC voluntarily prepares its financial statements in line with applicable United Kingdom accounting standards. From 2005 those standards will be required to come into line with the new International Financial Reporting Standards (IFRS) designed to harmonise international standards. These new standards will require changes to a number of accounting policies.

In line with other organisations the BBC has embarked on a process to review the impact of the adoption of IFRS. We anticipate completing this work over the summer of 2004 when the International Accounting Standards Board is expected to confirm its full requirements. The BBC will continue to adopt standards early, in line with corporate best practice.

John Smith

Director of Finance, Property & Business Affairs 17 June 2004

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Financial statements

Consolidated statement of income and expenditure

for the year ended 31 March

The BBC does not aim to make a surplus. Surpluses and deficits represent short-term timing differences between income and expenditure which will reverse in subsequent years.

The BBC has entered into certain joint ventures with Flextech and Discovery Communications Inc. but has no obligation to make good its share of their cumulative operating losses (see Note 14d).

The above results are derived from continuing operations in both the current and previous financial periods.

There is no difference between the results as disclosed above and the results on a historical cost basis.

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Financial statements

Balance sheets

at 31 March